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NOTABLE! Walter Hay's Q & A - Importing and Sourcing

Discussion in 'Product Creation, Inventing, Importing, Sourcing' started by Walter Hay, Jan 25, 2019.

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  1. Walter Hay
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    Walter Hay Legendary Contributor FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR

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    Please Note: This thread is a closed thread but I will be adding questions and answers from time to time. You can expect to ultimately see a very long list. This is not an AMA thread.

    All questions should be posted on my AMA:
    GOLD! Sharing my lifetime experience in export/import. Product sourcing specialist.
    but remember to search this thread and my AMA before posting a new question. *****************************************************************
    Q1: Quality. What is the best way to be sure that the quality of the product I order will be as good as the sample?

    A: There’s no doubt that paying for a reputable quality inspection service is your best guarantee of receiving the quality you specify in your order. There are many different forms that inspections can take, so study the inspection service’s various offers before deciding. Inspection services include; complete factory audit, usually before you confirm your order, unannounced inspections during production, post production random inspections or (rarely) inspection of every item., inspection of packaging in the factory or prior to loading, random inspections prior to or at time of loading, including sealing containers.

    Q2: Inspection Services: How can I choose a good inspection service?

    A: For security reasons you should use only well established services such as any of the following

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

    The first 5 listed have been in the business for over 100 years..

    TUV Rheinland publishes a blacklist of companies in countries everywhere who have improperly claimed that they have been certified by TUV Blacklist | TÜV Rheinland

    This list highlights the fact that the 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.

    Forging of certificates even extends to the forging of certificates verifying that an Inspection Service complies with legal requirements. For this reason I would avoid any service that advertises on Alibaba.

    Q3: Payment methods. Which methods should I use and which should I avoid?
    A: To some extent the answer depends on the amount you are paying. For small amounts, $100 to $200, the transaction cost can amount to a lot.

    This factor tempts a lot of newbies to use services such as Western Union, but in order to save a few dollars they are risking the lot. WU is the scammers' favorite payment method.

    PayPal is often recommended, but the great majority of suppliers won't accept that method. Manufacturers rarely do, and if they do, the transaction will most often be through a private PayPal account. If asked to make a payment to an individual, there is a risk involved.

    You will need to carry out some due diligence to confirm that the individual is not merely an employee of the supplier, but is at least part of the management team. If they have an email address that includes their name @company name, that is usually a good sign.

    Payment by credit card carries a good amount of security, but very few suppliers will accept CC payment. One major exception is that all suppliers on the Korean site listed in my book will accept CC payments up to $20K. Quite a boost to your frequent flyer points! Correction. I received a notice today from the Korean site notifying me of changes. The CC limit per transaction is now $10,000, but there is no limit to the number of purchases for which you can pay up to $10,000 per purchase. They also now accept payment through PayPal, but no limit is stated.

    By far the most commonly used payment method is T/T, also called bank transfer. Fees can vary enormously so you should shop around. I have even found lower fees with banks where I don't have an account. If you find a bank that offers low transfer fees, it could be worth opening an account with them.

    If the receiving account name is different to the supplier's business name it could simply be due to the export department operating under a different name to the supplier's company name. It is common for all exports to go through their HK company, so the names won't match.

    Be careful about sending money by T/T to an individual. That is often requested, so you must do careful due diligence to be sure they are owners of the business.

    Escrow is mostly safe, but few Chinese companies will accept it.

    For larger payments Letter of Credit is usually recommended, but beware of scammers supplying forged shipping documents such as a Bill of Lading. You can never be quite sure they are genuine. You can have a high degree of confidence by engaging the services of one of the inspection companies listed in the answer to Q2, who will check the loading and documentation.
     
    Last edited: Feb 10, 2019
  2. Walter Hay
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    Walter Hay Legendary Contributor FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR

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    Q4. Is there a legal way to import well-known brands into the USA for resale?

    A. The answer in brief is: If a product or a brand does not have a CBP Recordation number displayed on the USCBP website it SHOULD be safe for you to import that product or brand, but please read the entire post before you order!

    You can start your search here: Intellectual Property Rights (IPRS) search - cbp.gov

    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.

    More to follow on this subject when I answer Q5. Don't forget, if you have questions you want answered, please post them on my AMA thread.
     
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  3. Walter Hay
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    Walter Hay Legendary Contributor FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR

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    Q5. Is It Worth Doing Parallel Importing?

    A.
    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.

    A few 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.
     
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    Walter Hay Legendary Contributor FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR

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    Q6. Is Parallel Importing Really 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 of 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 profitably sell 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.

    This is the last of the Q & A's relating to parallel importing, but if you have questions on the subject, please post them on my AMA.
     
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    Walter Hay Legendary Contributor FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR

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    Q7. Where has Alibaba's community forum gone?
    A.
    You are referring to the old forum that I reported on some time ago, but it has been changed beyond recognition.

    The forum, previously found on Alibaba.com was quite revealing, containing thousands of no holds barred reports of complaints.

    If you go to Alibaba's Community Discussion forum and search for "Scams" you will find no discussion, just generic advice posted in 2014 and 2015 by moderators on how to avoid scams.

    All of this tells me that Alibaba realized that their real discussion forum was too revealing and damaging.
     
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    Q8. Why do suppliers on Alibaba and Aliexpress tell me I must pay PayPal Fees?
    A.
    After countless visits to China since 1978, I am very familiar with the Chinese way of doing business, so I can tell you what is behind suppliers asking buyers to pay some of their costs. In this case, the PayPal fee.

    It is part of the Chinese mentality. Money is of enormous importance to them and consequently every dollar counts. Many eRetailers are glad to pay what to them is a small fee.

    There is no such thing as a small fee in the eyes of a Chinese business person. To them it all adds up. They won't shrug their shoulders like the many eRetailers and say oh well, it's only a small fee. If they can add that to their sale, that is simply seen for what it is - extra profit. Small? No, because many small figures add up to large figures.

    It may help readers understand this thinking when I tell you that over the years I have seen numerous quotes for small value items priced to four decimal points! They might quote something like 1,000 pcs @ US$0.0724 per pc., rather than simply 70c.

    .24 of a cent! Less than 1/4 of a cent! Small, but it adds up. On the 1,000 pcs order that adds $24 to the otherwise total of $70.00. If it is for 10,000 pcs the total extra profit for them is $240.00 on what would have otherwise been a $700 order.

    But this is largely academic if you want to deal with genuine manufacturers rather than the traders you will find on the major B2B sites. The reason is that very few genuine manufacturers will accept PayPal, although the numbers are slowly increasing.
     
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    Q9. Must I order the huge Minimum Order advertised by Chinese suppliers?
    A.
    This is one of the most frequently asked questions, and the short answer is NO.

    Having said that, I know that it is not easy to persuade manufacturers to agree to a smaller order. This is why it takes about 2 1/2 pages in my book to explain how to do it.

    The first step is to avoid for as long as possible the subject of order quantity. If you can carry on for some time, an email conversation about product technicalities, colors, size, weight, packaging, lead time for orders etc., you will find that the supplier will broach the subject of MOQ.

    In accordance with acceptable Chinese business culture, you can even ignore the subject until the supplier raises it again.

    Finally you will have to address the issue, at which time you should ask first to purchase a sample for testing, and say that your boss will decide on order quantity after the test.

    Maintain the conversation, confirming receipt of the sample, and saying that the test is proceeding.

    Soon after, you will say your boss wants to place a trial order. Nominate the quantity you are willing to order.

    You must be prepared to accept that a smaller order will cost you more per item. Don't let them overcharge for that. You might have to accept an increase of as much as 40%, but there are ways around that, and the full answer is found in Ch.28, and Ch.29 of my book.
     
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    Walter Hay Legendary Contributor FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR

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    Q10. How Much Do I Need To Start Importing?
    A.
    This question pops up repeatedly, but it is not easy to answer.

    I have seen numerous forum comments, with the lowest figure being $1,000.

    When I started importing, I had the proceeds from the sale of my first business, so there was basically no limit. Despite that, I began very low key, placing small orders until I was completely confident that I had a good business model, and had found excellent suppliers.

    In the first 6 months I had outlaid no more than $5,000. From that point on, I went gangbusters.

    To provide a different perspective, here is an email from one of my book users:
    "Ok. From extremely skeptical to successful completion. Credit given where credit is due. I followed the book instructions you laid out. Took my time to double check everything and was able to successfully import an order from China. Not only that but it was also a “sample order” for less than 300.00. A 300% mark up has allowed to get initial investment back and I have 70% of my inventory left. Stop promoting your book. Your encouraging competition for me Many thanks."

    He was actually selling on Amazon, and on his own website, so I don't know what he might have spent on advertising, but I do know from later correspondence that he built a large business from that very low starting point.

    I suppose the answer to question Q10 is still somewhat up in the air.
     
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    Q12.B Can you tell me why my forwarder has charged me for a lot of extras when I have paid DDU for a shipment from my China supplier to Amazon FBA?

    A. The Incoterm: Delivered Duty Unpaid (DDU) is often used in order to confuse new importers. It is not necessarily door to door unless that is specifically stated to be so. It depends on what is the named place of destination. Very often, that named place will be the port of discharge, not your business or home address.

    DDU is used in place of the term Cost And Freight (CFR) which is identical except for the fact that CFR makes no mention of duty unpaid, although that is always what it means.

    Once goods are discharged at the port (whether airport or sea port) you can expect to be hit with a wide range of charges. This is why I emphasize in my book the need to get a comprehensive quote for freight that must include all costs. In other words it must state door to door, including Customs clearance work, AND it must be in writing.

    I hope they have now delivered to Amazon for you, otherwise you can expect to be hit with another charge.
     
  11. Walter Hay
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    Q12. My freight forwarder is asking me for a Continuous Customs Bond, but the shipment is below $2,500. Do I have to buy a Customs Bond?

    A. A bond is only compulsory if the shipment value exceeds $2,500. Even if the shipment is below $2,500 many nervous forwarders will require a Continuous Customs Bond to cover them in case the importer defaults after the forwarder has paid the duty.

    They should tell you at the time you are arranging the freight with them, but unfortunately some don't bother, and leaves you with no option but to buy the bond.

    If you are not planning on importing multiple shipments in any given year, you can buy a "Single Entry" bond, not a continuous bond.
     
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    Q13. I have been quoted prices for clothing and it seems ridiculously cheap. I suspect a scam. How can I know?

    A. You all know the saying "If it seems too good to be true...", but if you have found a real manufacturer that is willing to work on a lower margin than most, it could be true.

    It is possible to get amazing prices for goods manufactured in China. Women's Shoes for $2, men's suits for $12.

    Here's an example from the last time I was in Beijing. I was shopping where the locals shop in a dirty back lane, and went into a clothing store. There I found a good quality suit for retail US$38. (US$ equivalent to the RMB amount I would have had to pay if I wanted it.) Haggling would have reduced the price to possibly as low as $25.

    The shopkeeper had no possibility of exerting the buying power of a big retailer, so his cost would have been around $12.50.

    A couple of days later I was in Birmingham UK, where I saw a large retailer selling that identical suit on special at the equivalent of over US$130. The retailer probably paid a lot less than the shopkeeper in Beijing.

    When you find something very cheap, don't be scared off by the low price. Do your due diligence. Carefully check out the supplier and if all is legit, after buying and selling that very cheap item you can laugh all the way to the bank.

    Note: I would still want to start with a small order.
     
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    Q14. Do you think it is possible to find suppliers that have clothing in stock? I know you don't recommend Alibaba, but I saw there that they usually ask for 30 to 40 days until the goods are manufactured. Even if I source from the suppliers you recommend, they would still need 30-40 days, wouldn't they? In this case, is it better to buy from wholesalers?

    A. There will be suppliers who have clothing in stock, but it is not easy to find them. Most businesses in China that call themselves wholesalers don't carry stock. They get your order and deposit and then shop around the manufacturers to get the product made at a price that gives them a big margin.

    As a result it is difficult to find ones that would have stock. Even if you do, you need to be sure of the quality. If you buy samples, they might be the had finished ones that are superior to the floor stock.

    I would only deal with manufacturers even though delivery time will be longer. You need to obtain some samples first, then specify the quality and preferably hire an inspection service to do a QC check before the goods are shipped.
     

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