So I am pretty sure everyone read the news that Amazon is helping Chinese factories to get their brands listed on Amazon. It’s actually old news as the Amazon team has been on the grounds in China for a few years now.
Everyone is worried now which is understandable. One thing they definitely have advantage in is the price, but let me explain why that doesn’t matter.
Let me take off some of your worries right now and explain why this will not impact your Amazon business in a short time period and how you can prepare to be ahead of the Chinese sellers.
Minimum Order Quantities (MOQ’s)
Most factories have high MOQ’s and thats often because they need to purchase a certain amount of raw material from their sub-supplier. To do so they need orders. Bringing me to the next and most important topic, taking risks.
Many factories won’t take the risk of producing for their own stock and try to sell it trough some sort of sales-channel. They do in some cases, but these items are mostly found on Chinese websites and Aliexpress or DHGate.com
When they sell on these sites, the packaging you get is probably in Chinese, as is the instruction manual.
A factory does not produce on their own risk and try to sell it somewhere. They always need a customer behind an order. Be it a large retailer, a small time buyer from the Philippines or the occasional Amazon buyer.
They don’t have stock of the necessary raw material or packaging because the longer they store it, it will get smudged, dirty and might not be possible to sell it anymore. I know this because I have been to 100’s of factories in my time in China here.
When you go to a factory you won’t find their own packaging or raw material on stock. They ALWAYS purchase the material once they have an order incoming.
It’s just not economical for the factory to purchase raw material on their own behalf. Margins are so low these days, they need to maintain cash flow for their customers. Sometimes they have some stock but that’s probably from a over-production or from a client who didn’t take the entire quantity. Sure some factories have good cash flow, design & marketing departments and they will sell on Amazon. Those are the ones that you can see now already. But they do not posses the knowledge on how to SUCCESSFULLY sell on Amazon (yet). I don’t know anyone in China who has taken a course on Amazon selling or listening to podcasts on how to be successful on Amazon. And most factories in China just won’t take the risk of investing money into their own product to sell it online overseas.
It is not within the Chinese culture that you take a risk for something that you don’t know is going to pay off. Chinese won’t create a listing on AMZ without knowing that their product will sell.
They always go after the sure thing (there are exceptions of course).
When a factory develops a new item and they get their first order for it it is likely a “naked” item with no standard whatsoever. The factory needs to rely on each customer’s input on what the customers needs in terms of quality.
A small importer in Thailand has completely different quality requirements than a large German retailer. The importer in Thailand may require nothing, while the retailer in Germany has all sorts of requirements that involves large investments on the suppliers side. Who do you think the supplier will rather want to work with? Exacly, the Thai importer. Because his quality requirements are low and not much effort is needed to sell the product. So many factories do not have the necessary quality standard on new products. Amazon is heavily investigating into products that do not meet current American quality standards and if your product does not comply it gets removed. There are of course established factories who have meet all necessary quality standards but they are likely comfortable selling to their existing customers.
Certification & Requirements
I often hear from suppliers when I ask for a certification of a certain product: “you don’t need that, other customers don’t ask and we don’t have it”.
Well excuse me but I will decide what my market and selling channel needs in terms of quality & certification. Amazon is cracking down on many sellers who don’t have proper certification for their product or in most cases they won’t even allow sellers to list products without certain certifications or test reports. After all Amazon cannot afford to be sued by a customer who for example bought a plastic product that comes in touch with the skin and now the clients has a rash because the plastic is made out of waste material and has high toxins and chemicals in it.
Innovative and trendy
I have yet to walk into a showroom of a factory and see something new apart from the occasional exception at an established factory with retailers or customers in the West. That is after living and working here for over 10 years. There are of course suppliers that develop their own products but in many cases they miss the product to market fit. They always rely on the input of a customer on how a design of a product or the functionality has to be. I read a report a few weeks ago that quoted Former Hewlett-Packard CEO Carly Fiorina:
“I have been doing business in China for decades, and I will tell you that yeah, the Chinese can take a test, but what they can’t do is innovate,” she said. “They are not terribly imaginative. They’re not entrepreneurial, they don’t innovate, that is why they are stealing our intellectual property.”She added teaching innovation, risk-taking, and imagination “are things that are distinctly American and we can’t lose them.”
The quote caused some outrage around China but the majority of Chinese people actually agreed with Carly Florina and posted on Chinese forums like Weibo (largest forum in China). Saying they need to be more innovative and take more risks sometimes. They weren’t offended and I think she didn’t want to offend them, but she did point out the weakness where they have to improve. And that cements my earlier statement “ taking risks” is simply not in their nature.
I doubt that Chinese sellers can manage the customer service from China. They would need to hire perfect English speakers and dispatch them completely to their Amazon business.
I can tell you that if I ask my suppliers to do so they will probably ignore me. It is considered an investment “not worth it”. At least as of today.
It is very unlikely that a factory knows much about launching and promoting a product trough blogs, landing pages, Facebook promotions (Facebook is banned in China), review groups and so on that many of you have paid good $ amounts to learn.
But these are the channels that a new product needs when it launches or when it needs to grow. Otherwise your product just drowns amongst the competition and never lifts off to be in the top sellers.
Yes, they do have advantage over the price. But that is not the key issue when you sell on Amazon. When a supplier quotes you a price of 5$ his own profit will probably be less than a $. And that doesn’t really give him an edge, because YOU (the experienced AMZ seller) has years of experience, PPC knowledge, Facebook followers, mailing lists, existing products with reviews & social proof etc. that the customer is willing to pay for when making a buying decision.
Legal Issues & Company Setup
It is not very easy to set up a company in the States for a Chinese company. To be really successful on Amazon you need a private label, have a trademark registered and a company set up.
Not many sellers from overseas will go trough this process.
Facebook is banned in China. Sure they can get a VPN connection and go on Facebook but who are they going to promote to?
Build a Facebook audience with zero friends and followers? That is going to take a long time. Are they going to post on Facebook groups like The Amazing Seller or ImporDojo to post their products?
No. The last time a chinese seller promoted his product in my group I banned him. Not because his product wasn’t interesting or I don’t allow it but the way he did was pure spamming. Joined the group, no interaction at all, no feedback to other group members, simply wanting to promote his product to the group members without providing any real value to the group. So you can take one of the most important promotional tools for your new product (Facebook) already out of the equation.
Branding & Packaging
When I set up my own company (www.mandarin-gear.com) in late 2013 I had one goal. Affordable products at a great quality with excellent packaging.
What Chinese lack at this moment is an eye for design and western preferences when it comes to packaging. They also do not have properly translated instruction manuals on their own.
Sometimes they use their customers proof-read instruction manual when they sell to other customers but for new items they don’t have anything. Imagine what Amazon customers think when they open the box and can’t understand half of what’s written in there? How do you think that will affect the review? That’s why, whenever you buy a product in China always try to have a proper instruction manual. Check out my other post on this: http://importdojo.com/private-labels-packaging-differences/
English language barrier
Have you ever been on a Chinese website with English version? Yes? So you have seen the horrible grammar mistakes. This won’t change when Chinese sellers list on Amazon. Yes, they can now list their products trough a Chinese Seller Central account and it’s all in Chinese but that doesn’t change the fact that you need proper keywords and wording with excellent grammar when you want to list & sell your product successfully.
Suppliers simply wont be investing their money into proper English translation because they don’t believe in going the extra mile without knowing they will make a profit; so their listings will look horrible.
Would you buy a product when you don’t understand half of the text or description?
But they already sell successfully on Ebay and provide free shipping?
Yes, the Chinese sellers have taken on Ebay a few years ago and some are very successful. But only successful in terms of their sales and because the Chinese Government heavily subsizdes freight costs from China (China Mail).
I would say 20-30% of the items sold on Ebay from Chinese sellers are returned or the customers are unhappy with their purchase because of the quality of the product.
You can’t refund the item to the seller, you won’t send the item back to China, will you?
And even if you can, are you going to leave a positive review?
Amazon doesn’t work like that and everyone has to pay the local shpping costs in the US. So while the Chinese seller can send in his product at a cheap rate he still has to pay the local freight costs. And what stops you from getting good shipping rates from China? Most suppliers will offer you the same rates they get when sending goods overseas.
Also you can’t just list everything you want (there are restricted categories and legal compliances to be met) and whenever there are returns the clients will leave a negative review.
Amazon won’t hesitate to ban the sellers account immediately if the return rates are as high as 20-30%. Amazon has a strict policy when it comes to customers satisfaction and the way I see it not many Chinese factories can comply with their “basic” product on Amazon without having input from overseas buyers on how to improve the product.
Now having said all that, there are suppliers out there who already sell on Amazon and there will very likely be more in the near future who are capable of all the above especially with the help that Amazon is doing in China now.
But those are are only a few and “we” all have a headstart, the understanding of the marketing, promotional strategy and how the Amazon machine works best.
Eventually Chinese factories will figure all these things out but I am giving this at least 5 years. Essentially what is happening now (or has been happening in the last 2 years) is that a retail giant (Amazon) is trying to teach an entire army of manufacturers why they should sell on Amazon. This is a tremendous project and will take some time. In 5 years, survival of the fittest will have set in so now is the time to step up your game and be among those survivors. One of the most important tasks ahead of you now is to master the import trade so you can compete not only in marketing & sales on Amazon but also price wise.
So here are some important steps for you to remember:
- Improve your product quality based on reviews
- Pay a little more for better quality and regulations-compliant products
- Develop your own products and packagings and make them exclusive for you on Amazon
- Build or grow your brand with cross product selling and larger assortments
- Build or grow your audience (Facebook, mailing lists etc.) and be ahead of the Chinese competition
- Build relationships with suppliers for the long term and become one of their largest customers so that they don’t have to sell on Amazon themselves
And most importantly: Learn the import/export trade from the inside out
What else can you do? Step up your import knowledge and learn the entire import/export business from the inside out so that you not only have advantage over the Amazon marketing & sales process but also know as much about importing/exporting as the Chinese do.
Check out ImportDojo’s Masterclass, teaching you the in’s and out’s of sourcing from China here:
Happy sourcing 🙂