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A Beginners Guide to Trading with China

Looking to source your products from China? It’s a question many businesses ask as they start to grow and look to save costs and improve margins. It’s also a step taken by many established businesses faced with increasing competition and downward price pressures. Well before you take that leap here’s a few essential things you should know.

1. Trading with China can be fun and highly profitable – but it needs to be done with care and with a lot of planning. The road to China is littered with companies who got their fingers burnt badly due to poor planning and a lack of knowledge and research on the country they were about to engage with.

2. Firstly plan plan plan. What do you want to buy? What quantity do you want? What is your target price delivered to your door taxes paid? Be realistic or you will be disappointed.

3. Be very specific about what you want to buy – there are probably 1,000s of products being made like the one you want to buy – what size, what colour, special features, what quality, packaging. If you approach buyers with a clear and specific idea about what you want they are more likely to take you seriously.

4. Think carefully about quantity. The larger the quantity the cheaper it gets. China is a huge country with huge factories and used to supplying products by the container load. If you just want 100 mugs don’t expect the factory to offer you their best price – you will need to buy 10,000 to do that. To get the most out of China you need to think quantity.

5. Sourcing a good supplier. This is one of the hardest things to do and where things often start to go wrong. If you want just a small quantity then a distributor will probably be the best source, however for larger quantities you really want to go direct to the factories. This can be surprisingly difficult as most distributors will claim to be a manufacturer and will go to great lengths to convince you of that. Even for experienced traders fluent in Mandarin it can be very difficult to be sure you are actually dealing with the factory direct.

6. If the price they offer seems too good to be true it probably is! Many beginners believe you can purchase from China at ridiculously cheap prices and become a millionaire overnight – you can’t. The headline rates on offer from sites like Alibaba rarely materialise in practice. If your volume is small the price will go up.

7. China now has a mature and sophisticated manufacturing base and can produce products over a wide range of qualities and increasingly is providing very high quality products, but don’t expect to get them for the price of the poorly made ones. Think carefully about the quality you want and check the factory can deliver to the standard you require.

8. Remember to include not only your shipping costs, but also import duty and taxes, port costs and onward transportation to your premises (this is often overlooked).

9. Once you have found a suitable supplier request samples before buying large orders. You will have to pay for this but it’s well worth it.

10. Once you are happy to proceed check the terms of your contract very carefully, especially shipping terms, payment terms and faulty orders. Remember if there is a discrepancy between the Chinese and English version of the contract the Chinese version will take precedence. Don’t trust the factory to translate it for you – get it checked independently.

11. Check with the factory they can supply the correct paperwork to accompany your products. Things like CE marks (are they genuine), HS codes, instructions in English are important to get right at this stage or you may find your goods delayed or even impounded by UK customs.

12. Paying for goods. Do not expect credit! Until you have an established trading record with them they will require payment up front. Typically factories will charge 30% on placing the order and the balance when due for shipment. Remember exchange rates can change between order and time when you pay the balance so you may want to consider forward purchasing of funds. Don’t use high street banks to change currency – there rates are terrible and will eat into your profits.

13. Once order is ready for shipment verify the order is complete and of the quality you expect before making that balance payment.

14. Make plans for how you are going to take delivery of your goods when they arrive – if you take too long unloading a container you will incur fines which can wipe out your profit.

15. Inspect your delivery carefully and photograph and damage or problems. Hopefully you have included a contingency for this in your contract you signed earlier.

If all this sounds too daunting – don’t be put off – it isn’t but many companies do use the services of companies who are used to dealing with china and are experience importers. There help and advice can often save companies thousands in expensive errors.