For any ecommerce entrepreneur, one of the first steps is
figuring out how to develop your supply chain. You have three
options: you can produce products yourself, buy local, or
manufacture abroad.

This article will focus on how to source products from Chinese
manufacturers, as it is often the most complex and scalable way
to grow in ecommerce.

Why Source Products from Chinese Manufacturers?

The truth is, producing products abroad enables your business
to have strong margins, and when your gross margin can make or
break your business, chances are you’re eventually going to
want to manufacture abroad if you haven’t started already.

Economically speaking, the reason producing products abroad is
so cost effective stems from the value of our currency and the
cost of labor. The American Dollar is currently equal to 6.88
Chinese Yuan and 64.47 Indian Rupee.

You can understand why the labor costs are cheap when you know
the Chinese factory worker is getting paid an average of $2 USD
an hour compared to over $23 USD in America. The cost of living
is also much cheaper in China and to exemplify that I often
compare the price of bottled water in both countries: 25
cents in China versus 1+ dollar in America.

When you’re looking to produce products like watches or
backpacks, labor is your main cost outside of raw material. The
cost of labor in countries through Asia is always going to be
cheaper than in America.
Gross margin can
make or break your business, you’re eventually going to want to
manufacture abroad.Click To
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In this detailed guide to manufacturing products abroad, you’re
going to learn the following:

Types of manufacturers that exist and what to watch out for
in each one.

How to efficiently communicate with your manufacturer.

I’ll start with my experience in China.

My Background

I started learning about China during my freshman year of high
school in 2008 when I was studying the language. Like any
student who has studied a language knows, if you really want to
learn, you need to go to a country that speaks that language.

By my junior year of high school, I was a full blown foreign
exchange student living in Beijing with a host family and
attending a local Chinese high school. I’d bike 15 minutes to
school everyday wearing my school’s light blue tracksuit
uniform, hearing “Lao Wai” (foreigner) with every pedal I took.

In China, especially when you’re one of the only foreigners to
wear a local school uniform in a country of 1.3 billion people,
hearing the term “Lao Wai” is common. It’s just the way Chinese
people refer to foreigners and for the most part, it’s usually
a sign of welcoming interest.

In my year immersed in China, I studied Chinese for four hours
a day and became fascinated by the markets in Beijing. In the
Ya Show market, as an example, I learned the ins and outs of
haggling and when a shopkeeper started with a price of 2,000
Yuan, I tried my best to knock the price down to 300 Yuan.

(Me with a shopkeeper in 2010 after a successful
bargain!)

These markets were my stomping grounds and I eventually became
friends with some of the shopkeepers who explained the ins and
outs of their own supply chains.

Though the goods at all these markets are considered fake, some
of them do actually come from the manufacturers that produce
the real products. When a manufacturer needs to produce 100,000
identical products, there is no way they can produce that
exact amount so each production run will have
overruns. Factories will then often sell these additional
products on the black market, as their client doesn’t want more
than 100,000 of that product.

After my year in China, I became fascinated by supply chains.
Since 2010, I have been to China numerous times, brought dozens
of products to market, visited manufacturers across the
country, and ran a few ecommerce stores of my own.

Enough about me, let’s dive into the types of factories that
exist.

Types of Manufacturers

The types of manufacturers in China stem from wholesalers,
traders, and actual manufacturers. Between them all you have
sourcing agents that often work off of commissions.

One of the main problems when searching for a manufacturer
abroad is navigating through the plethora of middlemen on
websites like Alibaba. These wholesalers and trading companies
shouldn’t be your go-to source, as they’re taking a cut on top
of the actual cost from the manufacturer.

Instead you want to focus your sourcing efforts on actual
manufacturers so you can go directly to the source.

Learn More: For more information about
sourcing products from manufacturer’s on Alibaba, check out our
Ultimate Guide to
Safely Sourcing Your Product from Alibaba.

Before we dive into how to find a actual manufacturer, let’s
first understand how to identify wholesalers, trading
companies, and sourcing agents.

Trade Companies

Trading companies usually deal with a wider array of product
categories and make money by adding a margin on top of the
manufacturer’s price.

Most professional purchasers want to go directly to the
manufacturer. This isn’t always rational though, because if you
need a low minimum order quantity, it won’t make sense to work
with a larger factory.

The larger factory will have higher order quantity requirements
and you’ll be a small fish in a big sea, instead of potentially
being one of the trading company’s biggest clients.

Figuring out whether you’re dealing with a manufacturer or
trading company can be tricky though and some trading companies
will blatantly pretend to be a manufacturer when they are not.

Trading companies have distinct implications when you’re
sourcing from them:

It will be harder to assess the factory that will actually
be manufacturing your product.

It will be difficult to hold the trading company liable in
the case of defective products.

It may be easier for the trading company to ‘disappear’ or
otherwise evade communication.

Though these scenarios are rare, it is worth to be made aware
of.

Wholesalers

This type of business makes money in a similar way to a trader:
they buy a product in bulk and then add their margin to the
total cost. Wholesalers are common in America and at my company
Sourcify, when we help businesses cut
costs it usually stems from them dealing with a wholesaler and
not the manufacturer.

Most people deal with wholesalers because they often have
foreign representation. They may also have a warehouse in
America, meaning your lead time and shipping costs could be
reduced.

With that said, when we work with clients who have been buying
through a wholesaler, we’ve saved them an average of 45%-340%.

As an example, JJ George, a
company producing premium grills and grilling equipment, was
buying a key component from a wholesaler here in America. They
came to Sourcify knowing they were overpaying for this part and
wanted to save costs by going directly to the manufacturer.
Within a week, we found and introduced them to the manufacturer
in China who was producing the part for their wholesaler,
saving them 65% of their original cost for this part.

If you’re starting a new ecommerce business, I would recommend
avoiding wholesalers because you need that additional product
margin to grow.

Important Note: Also keep in mind that most
wholesalers deal with standardized products and so they don’t
have the ability to do much customization.

Manufacturers

When searching for a source, this should be your target. Going
directly to a manufacturer is almost always the best approach,
as you’ll have the most profit margin.

The problem lies in finding the right manufacturer to work with
and many don’t employ reliable English speaking sales reps.

Most the companies you find on Alibaba will be trading
companies, as they’re in the business of selling the products
they acquire from manufacturers and often employ English
speaking sales reps.

How can you determine whether you’re communicating with
a trading company or an actual Chinese manufacturer?

The first step will be to ask for a copy of the company’s
business license. The business license will tell you what kind
of company you’re dealing with. Once you’ve got a copy of the
business license, you’ll need to look at the ‘Business Scope’
label (经营范围 – Jīngyíng Fànwéi).

These companies that you’re communicating with should be more
than willing to send you their licenses. It should look like
this:

The business scope will be a list of categories that the
business is legally permitted to operate in. It looks like this
on the license:

If you don’t want the company to know that you’re researching
them or if you don’t trust the business license they’ve sent
you, you need to find the company’s registration record.
Starting in 2006 these have been made available online to the
general public by the AIC (Industrial and
Commercial Administration Bureau) for each province of
China.

To find the company’s registration on the AIC website, you need
to know which Chinese province the company is registered in.
Each province has its own AIC website. As an example, here are
the links to Beijing, Shanghai, and Guangzhou.

Once you’ve found the province’s AIC website, you’ll use the
company’s registered Chinese name to search for their record.

You can then use this public record to confirm the information
shown on the business license, or to check a company’s category
(trading company or manufacturer) without them knowing.

The flaw of this process for most ecommerce entrepreneurs is
that most province’s don’t have English websites so the search
must be done in Chinese. With that said, with Google Translate’s
Chrome Extension, you should be able to put the pieces
together.

Now that you know the types of “manufacturers” and how to
confirm them, we’re going to dive into ways to effectively
communicate with them.

Keys to Communication

Communicating with manufacturers can be the most challenging
part of bringing a product to life. You’ll face language
barriers and time differences, yet the amount of money you’ll
save producing abroad will almost always be worth it.

Having a good relationship with your manufacture stems from
clear communication and since relationships can make or
break business in China, communication will be essential to
your manufacturing success. (China literally has a term, “Guang
Xi,” that translates to the relationship of people in business.

When speaking with your manufacturer, you’re most likely going
to be talking to one of their sales reps. I’ve been inside a
manufacturer’s sales office and depending on the size of the
manufacturer, it can be filled with cubicle style desks that
are usually manned by a worker with an elementary English
level.

(A manufacturer’s office )

Step 1: Communicate Clearly

Manufacturers rarely like speaking on the phone because their
English level may not be good enough to speak and their ability
to type English is much better, so written styles of
communication are usually best.

For that reason, when communicating with them you need to make
your sentences as simple as you can. Do not use complex words.
Some sales reps will be using a tool similar to Google
Translate so making your sentences to the point can save you
from missteps.

Complex paragraphs and extended paragraphs will lead to
confusion. Make your questions clear and to the point. When
asking a manufacturer a set of questions, I’ve learned to list
them out in numerical order with one question on each line like
the following:

What is your minimum order size?

Do you produce product packaging?

Can I come visit your factory?

Though these are basic questions, you’re more likely to get a
better response by stating your message in an organized
way.

Step 2: Have Multiple Ways to Communicate

The next step to confidently communicating with your
manufacturer is having multiple ways to communicate. Just as
your shouldn’t single source (having no manufacturer to fall
back on), you shouldn’t rely on one mode of communication.

Email is not enough. You should connect with your manufacturer
through at least two or three forms of communication. The most
common are email, WeChat, Whatsapp, and Skype.

WeChat is a Chinese based mobile application that is very
similar to Whatsapp. Instead of using a number though, WeChat
is username based and users share “Moments” detailing their
lives. For most manufacturing sales reps, their WeChat will be
full of product photos.

Using WeChat, Whatsapp, or Skype will save you if you are ever
in a manufacturing emergency or just want to communicate faster
with your manufacturer.

Connecting on all three of these platforms also builds a
stronger relationship and further confirms that the
manufacturer you’re dealing with is legitimate.

Step 3: Have Multiple Contacts

Once you have built a strong relationship with a sales rep,
it’s time to dive deeper into the manufacturing team. I always
like to know at least two people at a manufacturing company
before I do business with them.

This way, if my sales rep doesn’t respond, I can get in touch
with my other contact there. A sales rep may not respond for a
number of reasons such as going on vacation, getting laid
off, or just simply getting lost in communication.

To get in contact with another employee that works at the
manufacturing company, simply ask to be introduced to a manager
or another sales rep. Your main reason for wanting another
introduction can be to confirm information or to have a
employee to fall back on. Your sales rep should understand this
and be willing to introduce you to other employees at their
company.

The best way to have a great manufacturing experience is
through constant communication. If I’m scoping a new
manufacturer or in a production run, I often touch base with my
manufacturer about three-four times a week. This will keep your
production run top of mind for your manufacturer.

Conclusion

When you’re manufacturing overseas, it is going to be an
ongoing process. Business in Asia is relationship based and
you’re going to need to maintain your manufacturing
relationships throughout your product development cycle.

Though language barriers and time zones may cause some
setbacks, it’s well worth it when you’re saving on production
costs. Once you’ve found a manufacturer who is capable of
producing your products and that you trust, it should be full
steam ahead towards finishing a production run.

What sets a successful production run apart from the rest is a
company’s initiative to engage with a manufacturer while
maintaining their relationship. If you’ve been looking to start
producing your products overseas, it’s about time you tried.
What are you waiting for!
Business in Asia is
relationship based & you’ll need to maintain your
manufacturing relationships.Click
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