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China Wholesale Explained

How does China wholesale work and what do you need to watch out for? This blog article will walk you through it.

Vaughn Cook RockWell Window Wells
Editorial Team
September 21, 2020

Strategic sourcing from a China wholesaler is about three things: Cost management, Stability and Risk management.

Strategic sourcing is a win-win for the buyer and supplier. A huge attraction of choosing a low-cost manufacturer is the cost advantage that is pretty much guaranteed to you. However, it helps to be realistic about how low you can drive down prices. Anything below the price floor of a specific item and you’ll have to deal with inferior quality and poor sales, however you may be able to negotiate a lower price for larger orders and maintain quality.

After finding the right supplier for your product, you will enter a formal partnership. The Chinese way of doing business is to maintain harmonious relationships, exchange favors, and be emotionally invested in the partnership. Ethical obligations supersede contractual obligations. The key to long-term China wholesale success is maintaining stable relationships with quality, savvy suppliers.

A relationship based on mutual trust and benefit is instrumental toward effective risk management. This is especially important when working with Chinese manufacturers as they are often reserved about sharing bad news or talking openly about risks. Chinese business culture also leans strongly towards social unity and centralized decision-making. You need to establish goodwill and show strong leadership before you can expect your supplier to have an honest conversation about a temporary cash crunch that may affect production or some legal trouble that may impact their business operations.

Find products to sell

You may have an idea for a product that solves a new or evolving need. You may want to join an existing pool of buyers that sell some of the most-purchased products on Amazon. Your market research will help you determine a profitable Amazon strategy.

Take into consideration how easy it may be to ship your product. Heavy products have higher shipping costs. Fragile items may suffer damage in transit and cause heavy loss in the event of an accident. Avoid products that are at the end of their lifecycle and likely to be phased out.

Your China wholesale strategy doesn’t have to revolve around a product, creatively you can source components for cheap and resell them or assemble them with other components for added value and sell the final product under your brand name.

Shipyard where goods is being loaded onto vessels
Calculate your landed cost to make sure your profit margins are accurate.

Calculate your landed cost

The landed cost is the total cost of getting a shipment to its destination. Determine the rate of duty you need to pay when you import your goods. There is a 13-digit HS code for products arriving from China to your country. The price of the product, shipping charges and clearing charges at customs, along with the total duty, tax and transportation costs to your warehouse all adds up to a bundled landed cost.

Know where to look for suppliers

A China wholesale strategy is popular among international buyers. A successful Amazon business, however, hinges on partnering with quality suppliers. You will find many on Alibaba, Global Sources and Made in China. These directories are a good place to start your search.

If you prefer to meet wholesalers and tour factories in-person it would be advantageous to schedule a trip to China in time for major fairs and tradeshows, such as The Canton Fair, East China Import and Export Commodity Fair, Yiwu International Trade Fair and Bauma Fair. The Canton Fair is the largest of its kind in the country. If you’re scouting the market for potential products to sell, you may get good ideas here.

Be aware that you can get ripped off

With support from government policies, China’s manufacturing enterprises have strengthened technological innovation and transformation. Opportunities to procure quality goods at competitive prices abound, but not every supplier can promise the same level of quality. In fact, those who advertise as being suppliers online may actually be intermediaries looking to trap unsuspecting Amazon newbies.

Anyone who has sourced from or otherwise worked with Chinese suppliers will tell you that quite a few supplier descriptions and promises are smoke and mirrors. When quality is a priority or if you require private labeling, your manufacturer should have the expertise, tooling and capacity to meet your technical, labeling and packaging requirements.

For this reason, Alibaba has different tiers of supplier checks. Even then, those who have undergone basic checks may only have tooling for less than half of the products advertised in their catalog. With just approximate 3D renderings and no molds, spec sheets or design drawings; generating trust may prove difficult. Enticed by a suppliers’ product catalog containing showcased items creates the illusion they have already manufactured items that in actuality they have yet to produce, sellers may fail to underestimate the risk until it’s too late.  

So, don’t expect every China supplier to have fixed product specifications, such as material specifications and design drawings. They will expect you to provide explicit requirements for materials, design, labeling and product compliance.

If you go with a cautious mindset and the knowledge that product catalogs don’t represent the full truth, you’re less likely to be bowled over by rock-bottom quotes. No supplier worth their salt will quote or negotiate unbelievably low prices. A healthy expectation regarding both price and quality is important to make a smart choice.

Supplier due diligence is critical for China wholesale success

Making relevant inquiries about a potential business partner is a necessary step regardless of whether you’re sourcing locally or globally. Checking business registrations and public documents, verifying trade accreditations, and speaking to previous customers take time and more so if you’re unsure about where to start. Getting in touch with the supplier also provides the clarifications you need to decide whether to go along with the business or look elsewhere. Don’t be afraid to trust your instincts even if that means going back to square one.

When reviewing suppliers, be sure to include these criteria:

·       Years in business

·       Experience working with Western suppliers

·       Experience producing the type of product you sell

·       Location of manufacturing facility

·       Relevant questions on tooling and quality control

·       Financial stability

·       Delivery times

·       Do some members of their staff speak English?

 You can spare yourself the time and costs of due diligence by involving a sourcing agent based in China. As the agent will already have a network of manufacturers, you may be able to save significant time and focus on marketing or other core business activities.

Your sourcing agent must have boots on the ground in China and your country

Your China sourcing agent represents you and acts on your behalf. From factory audits and multiple checks after mass production has begun, to shipping and customs formalities; the end-to-end service sourcing agents provide requires their physical presence in China.

The agent should also have an office in each of the countries it serves. You can reach them conveniently when you want, without time zone differences getting in the way. Offices in both China and the United States also indicate the agent’s commitment and reliability.

Integrated into Chinese culture

It goes without saying that the agent needs to have a good level of Mandarin fluency and be familiar with the ins and outs of Chinese business culture and communications. Western businesses face challenges adapting to the Chinese style of interaction and collaboration. The cultural concept of MiànZi or face, which can be translated to ‘reputation’ or ‘honor’ can make or break relationships. Your supplier may not fully understand your requirements but rather than ask for clarifications and ‘lose face’, they may avoid this conflict and produce your items anyway.

Chinese businesses are controlled from the top and decision-making is highly centralized. Reliance on leaders for instructions and lesser individual ownership of work or accountability can also play out in your relationship with suppliers. You need to state your requirements firmly and clearly to the product manager or factory line manager.

A sourcing agent based in China will be highly involved in ensuring that your specifications are crystal clear to the supplier. A good sourcing agent will review product appearance, dimensions, critical areas and performance with the supplier. The agent will also inspect the sample and confirm that the same material and process can be expected for mass production.

The ability to speak the same language will make a huge difference. You can also ‘lose face’ by criticizing someone, and your supplier will expect you to engage in respectful communications. To avoid any misunderstandings and potential flare-ups resulting from a lack of effective communication, it’s advisable to either speak Mandarin or work with an experienced China sourcing agent.

Experienced and knowledgeable

Agents that have been in business for at least six years are in the best position to advise you on a range of issues you’re likely to encounter. They will offer guidance in protecting your IP rights in China, stay on top of lead times that may be affected by local festivals or other disruptions, and know what shipping code to add to your consignment, preventing delays due to wrong shipping codes.

MOQs and supplier delivery model

Manufacturers specify a minimum order quantity but smaller orders typically put you at the end of the waiting list. Also, shipping fewer items only a couple of times a year can prove to be expensive for the manufacturer, so your costs may go up. From a cost and quality perspective, large orders are preferable. After all, the whole point of wholesale purchase is to secure volume orders and cater to a broad market or an in-demand profitable niche.

If your products require many unique or custom components or materials, MOQs may be higher than if the manufacturer was making generic goods. Even if the manufacturer agrees on a lower MOQ, the costs per unit will be higher.

What market are you serving? Are there times of the month when demand for your product peaks? How much inventory can you afford to hold? These are some questions to ask in determining the ideal delivery model for your Amazon business.

Just-in-time delivery: Does it make good business sense to receive products as and when you need them? If you have experience in inventory management and demand forecasting, this model can help prevent waste without affecting order fulfilment.

Continuous replenishment: You can set a predetermined schedule and have batches of items delivered to you at specific intervals of time. If your annual volume of an order is large, you may be able to negotiate a good price for consistent deliveries.

On-demand delivery: In an on-demand delivery model, delivery times are spaced out and you have the flexibility of waiting to reorder and trigger payment when your stocks reach a certain level.

Your initial conversations with the supplier should include delivery expectations. It is possible that your delivery requirements aren’t feasible for the supplier you shortlisted. Remember that Chinese manufacturers have small margins. If the cost to the supplier is too high to justify, they may decline working with you. If you can be flexible about your timelines, adapting to the way the supplier works can help you negotiate better terms and pricing.

Paying your manufacturer

Buyers and sellers commonly use international wire transfers, PayPal and letters of credit.

    - Bank-to-bank transfers or payment via non-bank providers like Western Union are safe. Banks perform an identity check of businesses and individuals that have an account with them. Western Union has tracking number verification and photo identification to ensure that money is being sent to the right party.

    - PayPal charges a percentage of the amount received and currency conversion fee for each transaction. So, it is recommended for initial samples or small orders only.

     - If you’ve pledged collateral with your local bank, they will issue a letter of credit, which guarantees payment directly to your supplier. Given the high fees charged by banks, this mode of payment is not suitable for large orders.

As far as payment terms are concerned, the general practice is 50% during the tooling/sample run and the balance after the sample is approved. For subsequent trial orders, Amazon sellers typically negotiate 20% down and balance on shipment. Mass orders usually follow a 30:40:30 split as down payment, payment after quality inspection, and the balance upon receiving shipment respectively.

Your sourcing agent can advise you on payment terms and help you chalk out an agreement that puts your Amazon venture on solid footing right from the beginning.

Sourcing Allies is a team of expert China sourcing agents that has helped western customers manufacture and source products from low-cost regions since 2006.

For more on China sourcing visit our website or write to us at info@sourcingallies.com.

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