Hustler’s Guide to Sourcing Manufacturers in China

Let’s not sugar coat it. Sourcing for manufacturers is a chore. It’s boring and you’d rather be doing something else. But finding the right suppliers is one of the most critical tasks in your consumer good (hardware, widget, physical product) business, and it’s likely you haven’t been using all of the tools at your disposal.

Don’t fret! Let’s explore the tactics below. At the end of the post, you’ll also discover a bonus hack to steal your competitors’ manufacturers – without having to do any work!

DO IT YOURSELF

THE RIGHT WAY TO ALIBABA

Most entrepreneurs know about Alibaba.com, and most of them are using the service WRONG. Alibaba is the world’s largest online market place to connect small businesses with manufacturers and suppliers. As mentioned previously, Alibaba revealed in its latest SEC filing that it has 279 million active buyers and 8.5 million active sellers on the platform, with $14.5 billion in annual orders.

Pros

  • Easy to use.
  • Instant access to hundreds of thousands of manufacturers and suppliers.
  • Basis vetting process for listed sellers.

Cons

  • No competitive advantage (your competitors have open access just like you do).
  • Need to sort through a large number of trading companies and middlemen masquerading as manufacturers.
  • Some of the best manufacturers aren’t on Alibaba.

Strategy

The “next-level” way of using Alibaba is to find manufacturer clusters, rather than individual factories. In China, manufacturing tends to happen in geographical clusters. For example, most electronics tend to be produced in Fujian province while plastic molding factories are located in Zhejiang province.

Once you’ve identified the cluster, visit in person to find the best manufacturer. While you can use Alibaba to source for suppliers directly, many of the best factories won’t be listed.

Another use for Alibaba is price checking. If you aren’t sure whether your supplier is charging you fairly, go on to Alibaba and ask similar factories for quotes. You’ll quickly be able to gage the price range.

Finally, Alibaba tends to be effective if you are creating a simple product. For instance, a new bag, cup, or Smartphone case. It’s usually harder to find manufacturers directly on Alibaba for complex products involving multiple moulds and electronic components.

Alternatives

Some sites similar to Alibaba.com that you may want to explore:

http://www.globalsources.com/

http://www.made-in-china.com/

http://www.hktdc.com/

SUBSCRIBE TO TRADE MAGAZINES

Subscribe to a trade magazine and start reading. Find them here: http://www.tradepub.com/

You’ll get an idea who the best suppliers are over time.

GO DEEP ON A SEARCH ENGINE

You might be thinking, this is the most generic tactic ever! But pay attention to what most people miss.

First, keep in mind that even today, many Chinese factories are using outdated and primitive websites that aren’t well optimized for an English search engine. That means you need to go deep. Visit the 5th to 20th page with each Google search.

Second, don’t be turned off by the manufacturers’ ugly websites. There is no correlation between their website and their production expertise. Pick up the phone and call them. Order some samples before you write them off.

Third, if you have a friend who can read Chinese, ask them to search on Baidu.com (China’s Google) for you. Great factories might not rank on Google, but they’ll have great presence on the Chinese optimized Baidu.com. Don’t have a Chinese friend? Go on oDesk or Elance and find someone who is bilingual to help you out.

ATTEND TRADE SHOWS

Attend trade shows in your industry and network with other buyers and suppliers. Often, reputable suppliers will not “whore” themselves openly on Alibaba, because they’ve already got enough business or only want to connect with proven buyers. Yet these are exactly the kind of suppliers you want to work with.

Plus, recommendations and referrals from people will save you a lot of vetting time.

Pros

  • Access to networks, people, resources, recommendations, and referrals that you would not have access to otherwise.

Cons

  • Initial cost of attending (flight, hotel, ticket).
  • Time investment.

Strategy

Do your research ahead of time and figure out who you want to meet. Trade shows will typically have a list of attendees so you can reach out ahead of time. This way, when you show up, you’ll already be a warm lead and can quickly escalate the relationship.

Which One?

To get you started, the Canton Fair (http://www.cantonfair.org.cn/en/) is the largest sourcing trade show in China. You might also want to check out East China Fair (http://vip.ecf.gov.cn/En/index.aspx) in Shanghai.

For a list of industry specific trade shows, check out: http://www.globalsources.com/TRADESHOW/CSF/INDEX.HTM

JOIN LINKEDIN NETWORKS

Search for relevant Linkedin networks and groups to join. Ask people for recommendations or simply listen closely and see what you can discover.

A few groups to get you started:

https://www.linkedin.com/groups?gid=86093

https://www.linkedin.com/groups?gid=44976

https://www.linkedin.com/groups?gid=2175649

BEWARE OF TRADING COMPANIES

In your search for suppliers, you’ll likely come across trading companies. These companies work with multiple suppliers to wholesale production companies. The cost to you will definitely be higher, as trading companies add another layer in the supply chain.

Some trading companies will masquerade themselves as suppliers. To uncover the truth:

1) Ask what they are (trading company or factory).

2) Ask to visit their factory.

3) Visit their factory and talk to the workers (there are stories of trading companies taking buyers to random factories in an elaborate ruse).

Pros

  • Typically offer you smaller quantities.
  • Faster access to inventory.
  • More likely to speak (better) English.

Cons

  • Higher costs to you.
  • There are often enough smaller manufacturers with low order volumes that you don’t need trading companies.
  • No expertise to help you customize your products.

Strategy

Most of the time, you don’t really need trading companies. You actually want to avoid them because they add an extra and often unnecessary layer of cost. In instances where you need inventory at a very small quantity, trading companies will be more willing to work with you than factories.

VISIT THE FACTORY

Your sourcing journey isn’t over until you visit the factory. Identify a list of 3-5 top choices for manufacturers, get on a plane, and visit all the factories to narrow down your list to the top 1 or 2.

This step is absolutely critical. Chinese factories tend to promise the world and under deliver, so you need to go and make sure everything they’ve been telling you is true.

Pros

  • Just showing up lets the factory “Lao Ban” (boss) know that you’re a serious buyer. They’ll treat you seriously.
  • Verify the factory can actually produce your product. You can tell a lot by showing up and looking at the working conditions.
  • Faster and clearer communication in person.
  • Build relationship with the Lao Ban.

Cons

  • Cost and time.

Remember, your sourcing journey isn’t over until you visit the factory!

OUTSOURCE SOURCING

If you don’t want to source for the manufacturers yourself, there are other options.

HIRE AN AGENT

Use Google and your network to look for sourcing agents. With an agent, the entire sourcing process should be, in theory, taken care of for you.

Pros

  • Agents will speak Chinese, and have access to supplier networks that you don’t have to.
  • Saves you time by not needing to deal with multiple factories.

Cons

  • Sometimes agents will refer business to factories that pay them a commission, rather than working in your best interest. Vet them via Google or your network.
  • Agents will charge between 4% to 12% of sales.
  • They may not have domain knowledge like you do, which means their judgment may not be reliable.

Strategy

The responsibility to ensure quality and timeliness is on you. Don’t expect the agent to manage your production process. Eventually, you’ll want to build relationships with the suppliers and manufacturers directly, because you’ll have much better control over costs. However, if you really have no idea how to start and need to produce a product quickly, agents might be a viable option.

WORK WITH A PRODUCT DEVELOPMENT FIRM

A product development firm takes the agent role to another level. Firms will typically manage the entire production process for you. That means you just provide the design, and they will handle everything from sourcing to production to delivering it to your warehouse. Use Google and your network to get recommendations to product development firms.

If you’re looking to manufacturer in China, many of these firms will be located in Hong Kong and Taiwan.

Pros

  • Everything about the production is handled for you.
  • They will have in-house engineers who can provide design, engineering, and production expertise.

Cons

  • It will cost you. A lot more than agents.

Strategy

One of the best uses for product development firms is to take advantage of the expertise that you don’t have in-house. If you have a design concept that you’re not sure is technically sound or production-line optimized, a development firm can provide you with the experience and technical expertise to bring the product to market.

BONUS

STEAL YOUR COMPETITOR’S SUPPLIERS

Why do the hard work when you can just steal your competitor’s suppliers? Try Panjiva.com (paid service).

Import records in the United States are public domain information, and services like Panjiva catalog that wealth of information into a presentable and searchable format. You can use Panjiva to search for your competitors, and then see the name and location of the suppliers that shipped products to your competitors. Then, simply Google these suppliers’ names and contact them.

Pro Tip: Sometimes your competitor will import under a holding name that’s different from their visible brand name. They likely do this in order to protect their shipping records. What you can try is to run their domain name through WHOIS.com, and see if their holding name shows up there.

WHAT’S NEXT?

Did you find this guide helpful? If so, share it with your friends by clicking the social buttons below. Do you have any tips when it comes to sourcing in China? Share your wisdom in the comment section below.

 

  • Jon Yorg

    Awesome article Mark!

  • Will.iam

    Great article. Thanks for the Linked In groups. I am trying to navigate this myself at the moment and it’s a bit like the wild west.

  • Will.iam

    Are the Alibaba purchase agents helpful/useful? I could use some help.

    • They might be, though I’ve never personally used them. What exact help do you need with?

      • Will.iam

        Finding a reputable plastics extruder

  • Business To Business(B2B) Marketplace- Manufacturers & Factories from China Manufacturing – efull

  • Awesome article,Great article

  • sourcing agent is very important to help you cost down and risk down.

    If OK,pls contact with us.

    http://sourcinghelper.com/

  • mrkelly

    One thing to consider with commission based sourcing agents/ product development firms (As I have been one for 12 years, Minnesota based.) Admit it or not, they have competing interests with you. They get paid a percent of the pie you spend. If I get 20+ quotes, I see a huge range in prices to choose from. On one side of the range your total order might be $10,000. A 10% commission make me $1,000. But on the other end of the range your total order might be $30,000. I then make $3,000.
    Beyond that, I have tactics that can get that $10,000 supplier down to maybe $8,000 through component level sourcing, slight design changes, freight consolidation, etc. Its extra work, but effective. If I was working on commission, that extra work reduces my compensation from $1,000 to $800. Of course that is against my best interest to work harder for less pay.
    That’s why I charge a royalty instead of commission when feasible. Then we have identical best interests, or at least not competing interests.
    Hopefully other service providers will take note and start doing the same so you can update your list. But not likely.
    Mr. Kelly Johnson
    Info@PartDistribution.com