068. What You Need to Know About Sourcing Products Overseas
So you want to start a product based business and now you are contemplating which manufacturer is right to service your business. Choosing the right vendor to source your products is a vital key to your pricing point and ultimately your success. You have to make sure the vendor can meet your production needs and requirement at a fair cost. Many businesses turn to overseas markets. There are many pros and cons to sourcing from overseas. The most common reason many entrepreneurs look to Asia, in particularly China, for product suppliers is to take advantage of the low manufacturing costs. Costs of manufacturing in Asia can be significantly lower than doing so within the United States, so much so that for many businesses, it could be quite difficult to be profitable if it wasn't for overseas manufacturing. Cheaper product costs are great, but they aren't the only reason Asia is an attractive place to find a supplier, there are some additional benefits as well: suppliers are generally much more open to working with small businesses and startups, overseas suppliers provide smaller quantities and MOQs, large volume of supplies to choose from which impacts demand, one-stop services like Alibaba have made it very easy to navigate and purchase from suppliers, and many overseas suppliers also offer drop-ship arrangements.
On the other hand along with the advantages of sourcing from overseas comes several drawbacks that you should be aware of. Major disadvantages you should be aware of are perceived quantity over quality due to lower manufacturing and labor standards compared to the United States, limited intellectual property protection (if any), language and communication barrier can be difficult to overcome, lengthier shipping timeframes, cultural differences in business practices and customs, navigating product importation and customs clearance, lower level of payment security and recourse.
Alibaba is a great platform for connecting with suppliers. A few years ago, Alibaba became a publicly traded company and has opened its service abroad. This opened up a flood of opportunities for businesses. However, as great as Alibaba is, it’s also plagued with some problems that you need to make yourself aware of when you are connecting with potential suppliers.
Three of the biggest problems with sourcing suppliers from Alibaba are middlemen posing as manufacturers, scammers who will take your money, and poor quality materials. As mentioned previously, Alibaba has hundreds of thousands of “manufacturers.” However, many of these “manufacturers” are not manufacturers at all, rather middlemen that masquerade themselves as so, marking up the price, increasing the level of miscommunication between you and the actual manufacturer while providing little, if any real value. Middlemen are bad they eat up your money by charging you higher fees, but scammers will take all your money. Although Alibaba has put forth a strong effort to combat and remove scammers from their platform, there are still a good share of dishonest vendors on Alibaba looking to take your money without any intention of supplying you with goods. And then there is the issue of quality which is a big concern when ordering from overseas. Many products will be advertised as premium or high quality, yet it's not uncommon to find that your opinion of premium quality and the overseas supplier's opinion are vastly different.
So how exactly do you protect yourself from middlemen, scams and low quality products on Alibaba? Well, there is no sure fire method, but there are several things you can do to protect your investment.
Alibaba has their own verification program in place which includes several levels of verification. Below is a chart that summarizes the three different levels of verification Alibaba has. These verification badges will appear on product listing and supplier profiles if they have them. Looking for this verification is a good first step. For more information on checking supplier verification, click here. For more information on Alibaba’s Gold membership for suppliers, click here.
In addition to Alibaba's verification, there are also independent 3rd party services located in Asia that will visit factories on your behalf to verify the supplier and product quality. Depending on the size of your order, a few hundred dollars extra for added piece-of-mind may be well worth it.
Ask questions and follow up
As you begin narrowing down suppliers make sure to ask a lot of questions about their business and their products. Ask for a copy of their business licensee, ask for a phone number and actually call it. Have a Skype meeting with your contact. Ask for photos of the factory and sample products. Feel free to ask for whatever makes you feel more comfortable doing business with someone a world away. It wouldn't be crazy for you to even ask your factory contact to take a photo of themselves on the factory floor holding up the current day’s newspaper and one of their products.
It should go without saying that before you invest any significant amount of money into inventory you need to get samples to check and verify quality. Feel free to even contact them through another (fictitious) name and email and get an additional sample so you can compare quality.
Be cautious anytime you are conducting business with another vendor, especially via Alibaba. If something seems too good to be true, it usually is. Be cautious of pricing or promises that don’t seem right or that are way off from other suppliers you've contacted. Always be willing to walk away from a deal if something doesn't feel right. Put these best practices to work for happy sourcing. If you have any tips for sources from overseas share your comments below.