how to deal with price increased from chinese

How to deal with price increases from Chinese suppliers

How to deal with price increases from Chinese suppliers

How to deal with price increases from Chinese suppliers (and what you can do about it)

By Manuel Becvar
By Manuel Becvar

Table of Contents

Today I wanted to share a blog post to hopefully help you and teach you how to deal with price increases from Chinese suppliers.

So you received an email from your supplier that prices have to be increased because the Chinese Yuan (RMB) is being appreciated, his labor costs have risen or some other reason.

  • Never accept any price increase blindly. Let’s first analyze the situation:

  • Has he increased the price within the last year? If yes, how often?

  • Has he stated on his last quotation the validity of the price?

  • What are the reasons he wants to increase prices?

Disclaimer: Some of the products may contain an affiliate link and we may make a commission if you click on it at no additional costs to you.

Here are common reasons for price increases:

  • Labor costs need to be increased

  • Raw material costs have increased

  • Chinese Renminbi (YUAN) has appreciated against the USD

  • Purchase of machinery to upgrade the factory

Let’s go through them one by one and see how you could avoid the increase or find an acceptable solution between the both of you. I also want to give you background on each so that you can understand these reasons.

Labor costs need to be increased:

When I moved to Hong Kong in 2005 the average salary of a worker was around 250USD per month. Yes, that’s right, per month!! Nowadays a worker in the production line can get up to 1000USD or sometimes more. Some of the workers earn more than the staff in the office. Factories need to pay a high salary to workers because it’s so difficult to find them.

Yes, China has over 1.3 billion people but not everyone wants to stand in a workshop or production line doing rudimentary work. Education has improved a great deal since the early 2000’s and people want to work in offices rather than on production lines. So factories have to reach out to far provinces to hire workers. Costs automatically rise in that process. I have been told that some factories rent a bus and drive to far away provinces actively hiring workers to bring them back to the factory that same day on the bus.

What can you do in that case? Honestly not much. But if a supplier keeps increasing prices because of labor costs you might want to look for another supplier who has more machinery or automated processes that require less workmanship. This can actually be more expensive (because of the investment for machinery) but you should have more stability on prices in the future.

Raw material costs have increased:

This requires a little research but if a supplier uses this reason for price increases you can quickly find out if he is lying.

Go onto websites like the following and research the price index on your product’s main material:

http://www.indexmundi.com/

Unfortunately, there is not much free information on the Internet; you have to pay for most services if you want real accurate data. You can also check out your local stock or commodity market online and see if you can get free data. Once you find your product’s raw material price check the development over the last few months or even years.

Compare it with the orders that you made to your supplier at the specific price drops or increases. If for example you ordered your item before at a lower raw material price than now, you can use this information to negotiate with your supplier.

I often find that suppliers use this excuse of raw material price to increase their profit margin. When you have data that backs that the raw material price has perhaps even decreased since your last purchase, let the supplier know and share the link or information that you found. Demand the same or an even lower price than what you are paying now.

If raw material really has increased then you might want to check by how much. If the supplier’s price increase does not match the actual raw material price increase, let him know and demand a lower price increase.

Chinese Renminbi (YUAN /RMB) has appreciated against the USD

The Chinese Yuan has risen over 60% since its revaluation in 2005 (when it was pegged against the USD). It has been undervalued for a long time but that has changed since the economic reforms under Deng Xiaoping. Since China opened to the rest of the world and became the world’s factory the Yuan has risen a great deal.

Many factories increase prices once the Yuan gets appreciated against the USD.

If the Yuan gets appreciated against the USD it is usually in the news and you should hear about it. You can also check official USD/RMB exchange rates to verify this claim.

Not much you can do here either, except perhaps asking for one more order with the last price before you accept the new price.

Purchase of machinery to upgrade the factory

This usually doesn’t happen very often, but when the factory claims there is machinery to buy to upgrade the factory it’s actually a good thing for you. It will lower the labor costs over time and you should have a stable price for a while. Ask your supplier to explain the type of machinery he is buying and how you can benefit from it in the future. Let him give you a guarantee or confirmation that this will benefit your price in the future.

 

What can you actually do to avoid price increases or battle them?

Validity of prices

Always ask your supplier to give you a validity of the quoted price. A common time frame should be 90 days, sometimes more sometimes less. In any case, ask your supplier for a validity of 180 days (6 months). It might take you a long time to decide to order this product for various reasons.

If you get back to the supplier after a while and you haven’t confirmed validity he might increase the price. That can put you in a difficult spot if you gave the quoted price to your customer. You might have to re-offer to your customer and that’s never good.

Big retailers usually have 1 year or even longer terms with suppliers. They can do that because the suppliers know that the quantities will be large and retailers often take a long time to decide because of their decision chain/process.

How to avoid or battle a price increase:

Short term:

  • Insist on the last order price for this order. Tell him you are about to give him a re-order.

  • Look into raw material price sheets. There are free sources on the Internet. You don’t even need to be updated all the time, but simply look at a price curve of the main material of your product for the last few months.

  • Has the price dropped or risen significantly? Did the supplier claim that the “xxxy” material has sharply risen? Check it out before you trust him.

  • Please use international currency transfer companies. DO NOT use your bank! See more below.

Long term:

  • Put measurements in place such as contracts or buying terms to which the supplier has to agree before you do business. Set up your own buying terms with, for example, a minimum validity of prices in all offers.

  • Ask for bonus payments or agreements. If you know that you will be reordering from this factory, make a written agreement that you will receive a discount of a certain percentage from the next order based on your previous year.

  • Bonus payments:

It is getting more common to agree on bonus payments these days. It works the same way as back home with your local supplier. You agree on certain delivery terms, merchandising payment, back-payments and bonuses if a certain turnover is reached per year.

This usually only works with suppliers that you already work with. But you can certainly try it on any supplier. Even if you get a few hundred USD discount or bonus payment it’s definitely worth it!

You could set the following simple bonus payments with your supplier:

Turnover Goal 2017: xxxxx USD

If reached, bonus payment of 5% (for example) to be discounted from the next order.

For every xxxx USD above this amount a further 1% (for example) to a maximum of X% applies.

Send this agreement to your supplier. You can obviously work out a more detailed agreement but this is a simple illustration on how it could look. In any case I am sure there is some bonus or discount that can be arranged on future orders. 

The best option would be a direct bank transfer of the bonus at the year’s end but most suppliers will only agree on a discount deducted from any future order.

Other ways:

International currency transfer companies

While this has nothing to do with negotiating with the supplier and as I’ve said already above, PLEASE use international currency transfer companies. such as Wise (formerly known as Transferwise)! In some cases you can save hundreds of $ on transfer fees compared to your average local bank. In addition they are much faster. 

As an example, last week I transferred 450US$ for a large sample order to one of my suppliers. The Wise fee was exactly 7.5$ and the supplier received it INSTANTLY. In comparison if I would have used a wire transfer with my local bank in Hong Kong it would have cost 75$ just to send it!

That way you could make up with price increases easily. Not only that but I use these service providers for all kinds of money transfers. Seriously, try them out. 

How to negotiate a good price with a low order quantity:

It is quite common that the supplier will send you a price based on a certain order quantity. Say 10USD for a quantity of 1,000 pieces. Sometimes suppliers will give you 2-3 different prices for different quantities. If you are planning to order an item, you should have a general idea of how to negotiate when you ask your supplier for a quote. 

DOUBLE (2,000) or even TRIPLE (3,000) this expected order quantity when asking for a price. It’s a tactic I use to see what the price range can be. If I actually order this item later at the quoted price but I am below the requested MOQ of the supplier I will pledge with the supplier to keep the price so that we can get started.

I will also mention that it will be a trial order and if everything goes well I will order the initial MOQ that the price was based on.

Perhaps the supplier will not give you the price based on your 1,000 pieces but he will give you the price based on 2,000 pieces to show his support.

This works in most cases. A supplier always will want to support you because they need to feed their factories with orders, even if they t make less profit, just to keep production running and to be cost effective.

Ask for a mixed calculation:

Say you buy 4 items from the same supplier and there is one item out of your assortment that is really price sensitive but the other 3 items are not.

Ask your supplier to keep the price on the price sensitive item the same (or decreased) and allow him to increase the other items at the same time (up to the maximum of the original price increase).

This way you can still offer the price sensitive item at the same price to your customers and lose only a little bit of profit on your higher margin items.

Advanced raw material purchase:

Many suppliers like to increase the price on your re-order. Let him know that you have an order coming up and that he should purchase raw material now at the lowest prices and that you want to have a better price than the previous order. He may want a written order confirmation for that so that he can purchase raw material on your behalf. Other suppliers offer on hand (or not)

If you have other suppliers’ offers on hand that are cheaper than the same item from your current supplier then tell your supplier and demand at least the same price. If you don’t have another offer on hand you could also pretend that you have an offer that is (say 10%) cheaper. Some suppliers may ask who it is from or if they can see it, but you don’t necessarily have to send it to him.

If you do have an offer from another supplier I would actually send it to my current supplier and ask him to lower the price.

How I got 7 suppliers to pay my buyer 100,000USD in bonus payments 

I had a buyer for Christmas items flying in from Austria pre-order season. We arranged to meet up with 9 suppliers over 2 days in our office in Hong Kong. I asked the suppliers to come in and meet with us to discuss the upcoming orders and next season items. The suppliers were happy to come and meet us because we usually would place orders in excess of 100,000USD to each of them per year.

We started off each meeting the same way. We told them we would be selecting new items and then we would tell the supplier how happy we were with the previous season and that we wanted to enlarge business this year. This got them in a happy mood. We selected a few new items to add to the assortment with each supplier. Eventually my buyer sat back and I started to talk about newly introduced bonus payments to each supplier. 

We wanted 10% of the last year’s order amount in bonus payments to be deducted from the next order. I also prepared an agreement to fix the payments right there and then with the supplier’s signature. We sat a long time with each supplier explaining the difficult economic situation, the EUR/USD exchange rate and how this all made it difficult for the buyer to succeed in his business. 

We needed the supplier’s support, there and then or else there might not be any increased orders. (You can always use other reasons, such as economic situations in your country, etc.) Two suppliers wouldn’t pay anything but we ended the 2 days of negotiation with over 100,000USD in bonus payments (some suppliers had orders of over 300,000USD from us). This was a lot more than we expected. 

How did I do that?

Initially the suppliers were reluctant. Since I wasn’t the actual buyer but the product manager it sure was a good thing the buyer was there. This way the supplier saw the buyer and had no way of wriggling himself out easily. Chinese do not want to lose face in front of their customers. They often promise the “best prices / best services,” etc., and it was time to prove they meant what they said. If you continually insist on a bonus and financial support they will eventually give in, because they want your future business and they don’t want to upset you.

In your case, since you will be the buyer, you see the importance of coming to China to negotiate your deals. A negotiation like this is highly unlikely to succeed via a phone call or an email. You don’t need to have an office here. You can hold meetings and negotiations in your hotel or at the factory. 

Even if your quantities or order value are not as big as the example above you still have an edge. Even the smallest discounts on your next orders could cover the airfare ticket you bought to get to China. Not to mention the suppliers you met on other days to source for new ideas. It will definitely be worth it.

Before you go into a negotiation with a supplier, plan ahead with a clear strategy similar to the one described above.

I do hope that this blog post helped you in some ways to get leverage when negotiating with your suppliers.

Happy sourcing!

Manuel 

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When and how to work with a sourcing company in China

When and how to work with a sourcing company in China

When and how to work with a sourcing company in China

By Manuel Becvar
By Manuel Becvar

Table of Contents

Introduction

Today’s post is all about how sourcing companies work and when it makes sense to use a sourcing company instead of doing the entire job yourself.

Back in the days when I worked for a Buying Office/Sourcing Company in Hong Kong I was travelling 10 days of the month scouting new products for customers in factories in China.

As a Sourcing Company we provided every service the customer needed to import so he didn’t need to handle everything himself. We earned a small commission (non-profit wholly owned buying office) on our orders and made life for our buyers a lot easier.

That was back in 2013. Today (2021) things are a little different and sourcing companies have adapted. Here’s how most sourcing companies work and how they charge. At the end of this post you’ll also find a list of sourcing companies in China/Hong Kong. 

Disclaimer: Some of the products may contain an affiliate link and we may make a commission if you click on it at no additional costs to you.

1) Up-Front Flat Fee:

Basically you pay a fixed up-front fee that is agreed on at the start of the project. The company starts sourcing and you’ll get a report after a couple of days. Usually complete with 1-3 supplier recommendations and which one would work best for you; an Excel file containing supplier contact details, product weight, measurements, description etc. At this point you could possibly hire the sourcing company for further steps (what that entails explained below) such as a full sourcing package or take it from here. No further costs are involved.

2) Up-Front Fee & Commission:

Some companies charge you an up front fee (usually fixed) and if you decide to order that product from the choosen supplier the sourcing company also gets a commission. This is a rather unpopular model as the sourcing company even gets money even if they don’t do anything further anymore.

3) Commission only (with contracts, usually big sourcing offices with monetary commitment every year)

This might be a bit of the older model but not many sourcing companies offer that to a new customers. The sourcing company does all the work in finding a suitable supplier and once the buyer is ready to place an order a commission is agreed upon and paid to the sourcing company once the goods are shipped. Since the sourcing company doesn’t have any guarantee that the buyer places an order this is usually only available for existing clients or buyers who have their own sourcing office in Asia. A good example for this would be the company I worked for many years in Hong Kong (Eurogroup.com.hk).

Eurogroup acted as the sole buying office for 3 big companies (Rewe Germany, bauMax Austria and Coop Switzerland). Every order had a fixed commission (agreed upon every year during a yearly meeting between buyers and sourcing company) and paid out at the end of the year to the sourcing company. Usually these percentages range somewhere in between 4-8%. This might be the best solution for you if you have the need of a contact person any day of the year and have a lot of orders every month (possibly more than 5 containers per month).

4) Making money on the backend

This is a practice used by MANY chinese sourcing agents or companies without Western management. It was very common in the 90’s and 2000’s but more and more oversears buyers have gotten wind about this (rather unfair) practice.

What basically happens is that the buyer pays an agreed commission or fixed up-front fee to the sourcing company and the sourcing company collected extra commission from the factory itself without the knowledge of the buyer.

Many Chinese sourcing agents have this agreement with factories. If they introduce a buyer to the factory the factory pays a commission to the sourcing agent after the order.

Obviously the sourcing agent doesn’t tell the factory what kind of money they already got from the buyer. It is difficult to figure out if there is money involved in the backend. Usually it is when a sourcing agent offers to work for a very low fee or does not allow you to contact with the factory itself. Beware of these types of sourcing companies.

When to use a sourcing company?

I find that there are different types of buyers and depending on what type of buyer you are you may want to use a sourcing company or not.

1) Experienced buyers who want to focus on other parts of the business

These type of buyers usually have imported from China for at least 1-2 years and have experience in dealing with Chinese factories and companies. If you are one of these buyers you are very likely stable on your profits and you may want to outsource this task to sourcing companies. Mostly because sourcing in China is a tedious process and can be very time consuming. Especially if you are in a growth phase and you need to focus on non-China activities in your business such as marketing, developing new products or diversifying your business.

2) Tight budget buyers who want to try themselves at the process first

You are very likely at the beginning of your eCommerce or general commerce business and have limited amount to spend on sourcing companies. If you are in this phase I actually do recommend that you do not use sourcing companies as you might want to learn the process first and experience working with Chinese factories first hand. There are a lot of tutorials available on the internet to learn about importing from China (including my blog posts and Import Bible).

Sign up here if you haven’t yet and get my Import Bible (The beginners guide to importing from China) for free: https://importdojo.com/free-ebook/.

Also make sure to read trough my blog posts: https://importdojo.com/blog/

So what do sourcing companies do?

Keep in mind sourcing companies do the entire job for you. Just to give you a brief overview of what this entitles and how long this process usually takes:

  1. Establishing your needs (1-2 days of communication)

  2. Sourcing compliant suppliers/factories in China based on your requirements (7-10 days for off the rack items)

  3. Preparing quotation and findings in a summary for you (1 day)

  4. Order samples and evaluate them for you (5-10 days)

  5. Negotiate final conditions/pricing (1-2 days)

  6. Issuing contracts and agreements (1-2 days)

  7. Placing the order in your name, making sure all terms are met and everything is fixed (2-3 days)

  8. Arranging production, packaging, labelling, shipment (7-10 days)

  9. Monitor production period (30-45 days  – obviously it doesn’t take 45 days to produce but when you place an order with a factory you need to wait a certain amount of time for all materials to arrive, arrangement of production etc.)

  10. Arranging inspection (1 day)

  11. Release production and arrange shipment (1 day)

So we are looking at 87-90 days (roughly always 3 months) from beginning of the project until shipment.

So if you do not have to monitor the entire process but rather want to focus on developing and growing your business it makes a lot of sense to hire a sourcing company.

When does it not make sense to hire a sourcing company?

I always recommend first timers to go trough the process at least once. That way you learn a lot about the trade and obstacles a sourcing company has to go trough. Also it will make you simply understand the process better – and appreciate the work a sourcing company is doing for you 🙂

What do sourcing companies not do?

Some sourcing companies may offer these services, some may not:

Inspections – make sure you use a third party inspection company. There are sourcing companies who offer this as an integrated service but I recommend hiring a company (such as QIMA/TUV, SGS etc.) who have many years of experience.

Logistics – some sourcing companies offer this – also here make sure you use a third party inspection company.

Reason why I say use a third party for inspections and logistics is that your sourcing partner is probably not the strongest in that field. Meaning their prices are higher and they are less experienced. You might argue that you want an all-in solution with one company and don’t mind but I’ve seen my fair share of problems with these all-in one companies.

Just think of it this way: if you want to have a great pizza you aren’t going to the Greek around the corner because they also serve Pizza. You’ll want to go to the best Italian in town (if they are affordable). And if the Italian serves a Greek dish it’s probably not the best Greek dish you can get…. I think you get my point 🙂

What can you expect from a sourcing company?

China is not a department store. What I mean by that is that you simply don’t walk into a store (even with experience) and everything goes smooth. There are a lot of obstacles that can come along the way. Governmental Inspections, Chinese New Year holidays, unexpected delays on raw materials, unclear communication from the buyers side delaying things and so much more.

Obviously most sourcing companies work in YOUR interest, not in the factories interest. However if the buyer is in-experienced with doing business in China some situations can become difficult in the buyers eye. Therefore it is important to understand all facets of doing business with Chinese companies. Again, I recommend to have gone trough the process at least once and ready up on my blog posts.

List of sourcing companies:

If you are looking for sourcing companies, Niechedropshipping has included a list of great sourcing companies here.

Conclusion:

I think it generally makes sense in any business to outsource those tasks that you aren’t good with (or have no time for). Just as I outsource certain tasks in my business. Do your research on sourcing companies and determine based on the following factors of the sourcing company:

  1. Experience

  2. Reputation

  3. Pricing

Pricing is usually my last priority in all tasks I outsource because I rather pay a little more but have less headache afterwards. 

I hope this gave you a bit of an overview of what sourcing companies do and how they can help you.

Let me know if you have any questions 🙂

All the best and happy sourcing,

Manuel

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Subscribe to our newsletter!

Sign up for ImporDojo and get our free eBook “The Import Bible” – the complete starter guide to importing from China. As well as updates on blog posts and news around the eCommerce world. We’ll never spam and you can unsubscribe any time – its FREE to subscribe! 

certification importing china

How NOT to get suspended on Amazon (Regulation & Compliance)

How NOT to get suspended on Amazon (Regulation & Compliance)

How NOT to get suspended on Amazon (Regulation & Compliance)

By Manuel Becvar
By Manuel Becvar

Table of Contents

Introduction

In the last few months I’ve seen more and more posts in groups as well as emails from my subscribers about getting suspended on Amazon or even getting products seized at customs because of non-compliance with regulations and certifications.

In this post I wanted to educate you in more details about the recent suspensions or headaches Amazon is giving new and existing sellers. More and more people email me about Amazon suspending their listing or not letting them list a certain product (sometimes super simple items). Most of the times it is too late if they are already suspended. Especially new sellers.

I’ve been warning people since last January 2017 when Amazon cracked down on sellers who don’t comply with legislations & regulations. No matter in the US or Europe, being compliant is getting more and more important to Amazon as governments try to crack down on in-compliant eCommerce companies.

I’ve taken a screenshot from Amazon Seller Central to show you what I mean:

Disclaimer: Some of the products may contain an affiliate link and we may make a commission if you click on it at no additional costs to you.

So what does that mean essentially for you as an importer? And how can you comply with these regulations?

I am sure you’ve done your research when looking at a product how you can comply but most of the times its pages and pages of text on government websites that are very difficult to understand.

So I wanted to give you a breakdown and brief overview of how you can can understand regulations. Be warned this is quite the long post but please remember this is a super important topic!

The following is an excerpt from my certificate course. This is such a comprehensive topic that it took me 10 months to finish the course. Here we go:

1) Country specific requirements

This can be a nightmare. Each country has different requirements and regulations. On top of that they change all the time or are being updated every few months. Making it also very difficult for suppliers to keep up with it. So it doesn’t always mean that when your supplier hasn’t heard of a new regulation that he is incapable of working with you but because these change all the time. See chapter 10 on capability of suppliers. Even though for example the European Union has general guidelines that are valid for many countries in the EU some countries have even sub-requirements.

There are norms & regulations that count for all countries. As for example D2001/95/EC or General Product Safety Directive (in short GPSD which regulates the CE directive) is valid for most countries within Europe.

Then again take Switzerland for example, since they don’t officially are a member of the European Union they have their own regulations. E.g. a GS certificate is not valid there, you have to have the equivalent on your product (S+ certification).
However in general it is safe to say if your supplier has a high standard of a specific country already (GS certification for example) that you are unlikely to be in trouble.

Make sure to check country specific requirements in your local countries websites and do not assume
that if GS is necessary in Germany the same goes for France for example.

2) What type of certifications are there?

First things first. You need to understand that certifications are based on directives and legislations. So for example the GPSD in Europe (General Product Safety Directive Legislation) or the CPSA (Consumer Products Safety Act) in the US says that a product needs to meet certain standards and need to be safe in general to import or bring to the market.

Simple right? Unfortunately not. The GPSD has tons of directives under its belt such as the CE, RoHS, REACH directive). Which means that for each product or category there are further sub-categories that have directives which tell you exactly what your product needs to meet. Wait a minute, what exactly are you saying? I can’t read all this technical jargon….

There are several types of certification. Before I explain which ones are available please note that most countries have different certification requirements. There are also directives and legislations issued by Government Agencies or councils which can be met when having the right certification. A Third Party Testing Institute for example issues a certification after having tested the product according to directives and legislations.

Simple please? For example if the RoHS directive (which is under the GPSD legislation) says that a product has to be tested on how many percent of a chemical compound is in the raw material (e.g. Cadmium or Lead) of the final product, the certificate will only be issued once the testing is completed and the percentage of chemical is not above the allowed directive/legislation of RoHS. With that being said, there are:

A) Certifications/Marks required by law
B) Certifications/Marks good to have
C) Certifications/Marks recommended

3) Who and how are certificates issued?

1) Certificates are not issued by factories themselves (except SELF certifications declarations of conformity). If they are issued by the factory as a declaration of conformity – this is not evidence as such that the product complies.

2)Certificates are issued by Third Party Laboratories (TPL) or Government Agencies (GA). These certificates are actually evidence of conformity, give you peace of mind as well as support you when someone claims that your product is not conform to regulation.

Whats the workflow? The supplier or you needs to send in the sample of the product to a TPL or GA. The TPL or GA will then conduct testing according to requirements issued by the governing country or body. If the requirements are met, the TPL/GA can then issue a certificate that is in some cases valid for a short period or in some cases does not expire. The TPL/GA will then forward the original and copy (PDF) of the certificate to the party who paid for the testing costs.

4) What does my product have to meet legally?

In general your product has to meet country specific legislations & directives. Those can be as simple as a document of conformity (DOC) which can be self-declared or a Third Party issued certificate (or Evidence of Conformity) which will cost a certain amount specified by the Third Party. What your product has to meet legally can be researched on government’s websites such as the CPSC in the US or the European Commission in Europe.

5) Do I really have to have all certificates?

Yes and No
The good news first. No you do not have to have all tests and certificates done by third party laboratories (both the US and Europe). What would suffice in (almost) all cases would be a declaration of conformity. Wow really? Yes, and here is the “however”. 

If you trust your suppliers blindly that all raw materials are free of hazardous chemicals, comply with electromagnetic compatibility (electronics for example) or meet certain other standards then that would be very foolish. If your supplier can’t provide any certification and claims that he complies with everything you ask for thats a huge red flag. 

I also understand that you don’t want to invest in any certification not knowing if it will sell. And this is the most important part where you as an entrepreneur and business person need to come to a decision. A) Is my product potentially dangerous (can it explode??). B) Is my product relatively simple
and can’t harm anyone (e.g. leather wallet)? Once you’ve figured out what you need for your product you need to evaluate what should be invested. Let’s take an example. For the sake of it let’s look at a simple and a complicated product.

Simple product:
Solar powered garden light for 1.2$. Comes with nothing but a few cables, some plastic and a solar cell. Simple right? Technically I have to meet the following: LVD (EMC), ROHS, REACH & CE in general for Europe. Now if I were to test all of these, the costs would amount to roughly 2000USD with a very cheap Chinese laboratory.

If it was TUV or SGS the costs would be triple that. Now what if I am going to order 1,000 pieces and my testing costs would already cost more? That doesn’t make sense. In this case I suggest to get self declaration of the above regulations and save yourself these costs. 

Obviously you’d still want your supplier to declare that he can fulfil those requirements so look for suppliers who already deal with customers in the country you want to import to and have a good
reputation or can back up their claim that the item is compliant with raw material certificates for example (from the raw material supplier).

Complicated product:
Small Electric fan heater 5.9$. Comes also with a few cables, some plastic, a plug and a PCB. Simple right? No. You see, I need to plug this product into the socket (230Volts plus) and the potential dangers are very high. If the unit tips over or a child puts a cover on top, the entire unit can burn up (and the house with it).

Also here technically I have to meet the following: LVD (EMC), ROHS, REACH & CE in general for Europe.
Ideally I will also want a GS mark for Germany because this is a product consumers want to have with GS. On top of that I want abnormal testing from TUV for example. Abnormal testing means they would test what happens if you cover the unit with a blanket or if it tips over that the unit switches off automatically. A good supplier knows that there needs to be a tip over switch installed and overheating fuse included. This abnormal test alone costs 4-5,000USD.

A GS mark costs somewhere in the same vicinity (2-4000US$). The other tests (LVD, RoHS, REACH & CE) are roughly 2,000USD. Now we are looking at 10-12,000USD investment costs. Would I do all these testings before purchasing? Yes, 1000%. I do not want to risk my business or anyone else’s life because I wanted cheap. You may say ok but I don’t have that kind of money. Then you need to find a supplier who either has these certificates already or is willing to invest the money for you. If you can’t find one than its simple – the product is not for you and your budget. 

You can still go for it without all the testing and certifications but I think we are on the same page here that that would be a very foolish decision in case anything happens.

Now I can’t go into hundreds of products or case studies here, that just isn’t possible. But I think you see my point. First I need to evaluate if the trouble is worth it and if I even want to deal with complicated products.

If the answer is yes then the strategy is pretty clear I think – test and get certificates. If you don’t dare to sell these risky (but profitable) products go the easy way and pick simple products or walk away.

You don’t have to have recommended certification like GS or UL on an electronic product. These
are recommended certifications that improve your chance of selling and create more trust for your
customers. We call these “Quality Seals”. But remember, a self declaration is not evidence of compliance. It is merely a statement by you or the supplier that all regulations are met.

So if you want to be on the safe side you do testing with a third party laboratory and get actual
evidence certificates). This is for your own protection.

Imagine you are a consumer and you see an advertisement somewhere (online/offline) and the advertiser has a certain quality seal like GS/UL. Would you rather buy the quality approved product (even if more expensive) or that of another seller who does not have these quality seals? I think it’s needless to say you go for the quality seal product. 

Most big retailers only purchase a product when it even meets all quality seals. For example
Walmart or Sears will probably not import a baby product that hasn’t got FDA approval and BPA free certification. They just can’t afford to be in the news when the product gets tested by a watchdog and the test fails.

6) How does everyone else do it without certificates?

Many importers, especially small ones, eCommerce sellers or importers who send via Air Express (DHL etc.) avoid getting caught by customs and authorities because these carriers (DHL etc.) have special clearance at customs. Why? Because they clear millions of shipments every day around the globe. If every shipment would be inspected by customs, logistics and delivery times would be a nightmare. So yes basically everyone else is breaking the law.

Importers who go the regular way (regular Air or Sea freight) have to clear each shipment with customs. Since clearance takes a lot longer and there is no “waving trough” of your goods like with DHL they do look at most shipments in detail. If your product does not have necessary certification/documentation your products can get seized and you’ll never get them back (unless you miraculously acquire the certification in a few days).

So yes, you may save a few hundred or thousand $ if you don’t get caught. But if you do get caught, fines or seized goods that can be much more expensive aren’t worth it. So go the correct way from the beginning. Not only do you have an edge over your competitors (you have a quality seal, they don’t) but you also have a safe product that your customers will appreciate (in turn even mention during a review).

7) General costs

As a general guideline here are some costs from a local Chinese testing laboratory (CTS):

1) CE/EMC (800RMB) calculators, clocks etc.
2) CE/LVD (luminaires 2800RMB)
3) RoHS (950RMB)
4) REACH (590RMB)
5) FCC (800RMB up)
6) FDA/BPA(4000RMB)
7) LFGB (6500RMB)
8) GS (7500RMB)
9) Colorfastness (80RMB)
10) PAHS (390RMB)
11) AZO DYE Test (210RMB)
12) California Prop65 (800RMB)

8) Who pays those certificate costs?

If the product does not have certification and your market requires it the costs lie with you. However if you can convince the supplier to pay for it you may save those costs. Why would the supplier pay for it?

For one, it increases his chance on selling more of his product because he can advertise the certification to other customers and second it helps to improve the quality of the product (if he needs to make adjustments to the product in order to meet the testing requirements). 

One may argue and say “but I don’t want other customers buy this product, especially not in those countries that I am selling from” – well then it is pretty clear that you have to evaluate if the testing cost is worth it so you can have the certificate exclusively and in your name. Because if you pay for it the supplier cannot advertise or lend the certificate to other customers.

9) Where can I save money?

In general simple products that have very low requirements such as a knife sharpener, salad bowl, decorative items etc. are ok to have only a Letter of Conformity

  1. examples  of European templates here: http://ec.europa.eu/DocsRoom/documents/5830/attachments/1/translations

  2. examples of US templates here: https://www.cpsc.gov/Business–Manufacturing/Testing-Certification/General-Certificate-of-Conformity-GCC

  3. or a Letter of Guarantee issued by you or the supplier stating that all items are conform with regulations and standards. Best to check with your supplier or a third party test laboratory.

10) Are EU certificates valid in the US & vice versa?

In general NO. Even though some certifications have a stricter testing procedure (such as LFGB in Europe) they are not acknowledged in other countries. So if your supplier has no FDA certification for the US but he has LFGB for Europe (the equivalent to FDA) it is a good sign that his products can meet regulations but it won’t help if you need certification for the US. If you have a good product and feel the investment is worth it then go for the certification and pay it (or convince your supplier)

11) Getting the supplier to test for you

As mentioned before you can also have the supplier apply and pay for the certification. Especially if you are selling solely in one marketplace and “allow him” to sell to other countries or markets than you are selling. E.g. Imagine you are based in Germany and for now you only plan on selling on Amazon Germany. You could tell him that he is allowed to sell to any other customer within Germany (online or offline) if he pays for the certification.

German importers or bigger clients are more likely to buy from a factory if they have a certain certification for example. Same goes for the North American market. Walmart for example is more likely to buy from a factory if he has proper certification.

12) Why do some suppliers have no certificates at all?

Sometimes suppliers have no certification at all because either:

  • The product is new and they want to see if the market needs this product before paying for any certification. Basically they want to test the waters before investing themselves.

  • The supplier only sells to countries where no certification is required at all (imagine regulations in Africa)

  • No one has told him yet what is needed and he waits for customers input

  • He simply doesn’t care and wants to make a quick buck (stay away)

  • He doesn’t have experience in your market but is otherwise capable.

The above is only a brief overview of thousands of regulations and I hope this gave you a bit of an overview. If you want to learn about this topic with in-depth material to make sure you are compliant, check out my Certifications course in my Importdojo Masterclass or post your question in our Facebook group here.

All the best and happy sourcing,

Manuel

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Why you ALWAYS need inspections in China and Europe trip report

Why you ALWAYS need inspections in China

Why you ALWAYS need inspections in China

By Manuel Becvar
By Manuel Becvar

Table of Contents

China Quality Inspection

A little more than 2 weeks ago I came back from my Europe “vacation” which was not really a vacation but more work because I was constantly on some calls or working on other stuff.

It was quiet around me but I was not sleeping but rather working on many projects. Some of them I wanted to share today. Before that I also wanted to share why you always need inspections in China. Regardless what suppliers or other people tell you. Trust me, I’ve been in this business for nearly 17 years (as of 2021) and I’ve had my fair share of problems even WITH inspections. 

 

Disclaimer: Some of the products may contain an affiliate link and we may make a commission if you click on it at no additional costs to you.

So when I got home to Asia I had an inspection on my 7th re-order of the French Press case study product I did a year ago. 

I’ve always preached how important inspections are and I do them every time. Even with suppliers I work with for a long time.

It really doesn’t matter how well you know your supplier and how often they plead not to do inspections. You hear something along this line: “don’t worry my friend – always good quality, no need to inspect”. Have you heard that phrase? I’ve heard it a million times and I ALWAYS do inspections anyway.

So this was an inspection with my “famous” French Press and before I received the report the supplier told me many times that we don’t need an inspection… Even on the day before I received the report the supplier messaged me (because he was obviously in the factory during the inspection) that I should release the shipment, there are just a few scratches, nothing to worry about and I should go ahead and send him the payment….

Never trust your supplier. I am not talking about the sales representative of the factory and I also don’t mean this in a negative way. I am talking about the factory workers, the QA manager on duty and down the hierarchy. They might have a bad day or the factory manager decides to rush an order (remember many factories are being closed right now so I attribute these issues to that).

Have an inspection, evaluate the problems and release shipments if these are minor mistakes. I often release shipments even if the inspection is “fail” when there are minor issues. However in critical cases, demand re-work & re-inspections until its fixed. Otherwise the supplier doesn’t see his money. Another good point to never pay more than 30% downpayment.

To see what I mean when I say critical issues here are some images from the inspection:

The supplier just switched screws that were cheaper without my approval!
Always view inspections from a customers point of view. Would you accept these type of issues?

Protect yourself!

And there were many other issues. So what do you do in these kind of situations? First of all you need to have an agreement in place when you place the order. I usually have three terms that I include in my contract and 95% of suppliers will agree to that:

  1. Re-inspection and re-work at suppliers cost if the inspection has major and critical issues

  2. Replace returned units from customers higher than 6-8% (depends on product). This usually means those 6-8% are free units on my next order.

  3. Penalty fees for late delivery. Say 10 days after agreed delivery date 0.5% of total order value. 15 days – 0.75% and so on.

Most suppliers will agree to these terms. The point is you negotiate this when you place the order and before you transfer any money. These things happen can happen to all of us and you always need to have a safety net (inspection).

So what happened in my case? The supplier asked me if it would be ok to send pictures only without a re-inspection… no way. How would I know if he just takes photos of items that were in perfect condition anyway and not re-work?

So I asked them to acknowledge our agreement of paying for re-work and re-inspection in case of serious issues. And that’s what happened. The supplier has since re-worked everything and the re-inspection was a few days ago, this time with very minor issues and I released the shipment.

The moral of the story here is really to have a safety net and don’t let the supplier talk you into easy solutions (for him). Because your business will suffer in the end. Granted this was the first time the supplier screwed up but that just makes my point. You never know what is going on on the day of production and it might not even be your sales representative fault. HAVE INSPECTIONS they start from 300$. Personally I recommend QIMA. I’ve been with them since 2014 and I am very happy with their online booking system and the quality of their reports. I’ve also had an issue once with an inspection and without any questions asked they helped to solve the issue. 

Europe trip report

So having that out of the way and without further ado I also wanted to share some moments of my 7800 kilometer trip (4800 miles) in Europe 🙂

We left to Europe on 29th of July. Most people who know from my previous posts about my fear of flying. Also explained here. So I treated myself to lying flat again
We landed in Vienna (Austria) pretty late that night and had a long breakfast the next morning with an amazing view
We then headed to my Mum’s place near Salzburg and would you know there was a village festival. Which was pretty empty for what it was?
Stayed for a few days there and then headed for a hike in the Tyrolean mountains near my friends place. I took the opportunity to snap a few pictures with my newest product
We then made our way to Sweden and stopped in Hamburg in between to meet up with Gil from Privatelabeljourney.de and his lovely wife.
We finally arrived after a 16 hour drive to my private sanctuary. Had to chill for a few minutes to let it all sink in.
On the very next day we went looking for mushrooms in the forest.
Enjoying a sunset
Preparing for my speech in Innsbruck (Austria) 2 weeks from now
Our first catch!
And more mushrooms!
A few days later we were in Venice, Italy. Another 18 hour drive.
From there we headed to Budapest, Hungary (another 8 hour drive) for one of my best friends wedding.
Including a bachelor night. No details here 🙂
The wedding was set in a beautiful castle outside of Budapest
Eventually bringing me to the last leg of my trip. I was speaking to becoming and existing Amazon sellers about niche selection and why innovation in product development matters
Including a bachelor night. No details here 🙂
And Vienna again on the last night before flying home.

So that was that, my 6 weeks in Europe. A lot more moments that I wanted to share but I don’t want to bore you 🙂

I hope you’ve enjoyed this post!

Happy sourcing,

Manuel 

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Read More »

Subscribe to our newsletter!

Sign up for ImporDojo and get our free eBook “The Import Bible” – the complete starter guide to importing from China. As well as updates on blog posts and news around the eCommerce world. We’ll never spam and you can unsubscribe any time – its FREE to subscribe! 

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