If Buying Directly?
the pros and cons of buying directly from China
The Benefit of Buying Direct
To most people, at least on the surface, it may sound like a wonderful idea. Cut out the middle-man and get better pricing. While this can be true in certain products, there might be more than meets the eye. This benefit stands out singularly as the number one and the most common reason for buyers wanting to buy directly. The Internet, and its many search engines, and B2B portals like Alibaba.com, have made finding potential factories much easier, but the Internet cannot shield you from the many risks that are involved in buying direct.
On the surface there appears to be a definite saving in cost by buying direct, but adds in other factors such as possible lower quality, additional customs and transportation fees, and personal time and resources spent, the final costs may not always point to buying direct as the lowest price winner.
The Risks of Buying Direct
Buying direct from a Chinese vendor is governed under different sets of rules and transacted in different ways which consequence would be risks never encountered:
-Quotation traps by a 'low-ball' pricing
To get the attention of overseas buyers, many Chinese factories will quote low pricing first. Once they have eliminated most of the competitors, they will gradually increase the overall quote. This in turn can mean more money in additional cost to get the job delivered in-place and on-time, or worse, money to redo the job elsewhere or domestically.
-Material cheating risk
To lower costs, many Chinese factories will use inferior or low grade quality materials for the job. Minor grades difference on material means unexpected high cost advantage for a factory, but would be much more poor quality of finish products to buyers finally.
Since the specs for many materials used in the West and Asia are very different, many Chinese factories will use lesser grade materials to quote a job without fully explaining to the buyer the difference.
-Payment term risk
Many Chinese factories will quote a price based on "ex-works" or just ship to the port of export. Buyer is left on his/her own to take care of ocean freight, customs, and everything else that come with importing.
The term "EXW" means the goods will be in the factory for buyer to pick-up. Many factories like to play this game. They first offer a rock-bottom price. Once the job is finished, the buyer will be very likely to pay the added costs for transportation. By doing this, the factory, in effect, lowers the overall price to lure in the buyer. By having paid some form of deposit, the buyer is stuck with this factory and will usually resort to pay the added cost for all freight charges.
The term "FOB" means the goods will be shipped to the port of export, and the buyer will have to arrange for all the subsequent transportation. This is usually favored by buyers who have frequent and high volume orders; otherwise, the headache and cost of arranging for everything else that comes afterwards will easily make a grown-man cry.
The term "CIF" means the job will be shipped to the named port of entry. Though this may sound like a relief compared to the above two, there are still many other costs associated in getting the shipment out of the port and into the buyer¡¯s hands. While it is not complete, this should be the very minimum that an overseas factory should base its prices on. Unfortunately, to calculate CIF price involves knowing the total weight, volume, pallets, etc. of the job in question and finding out the different freight charges to the named port of entry, many Chinese factories just don¡¯t have the resource, time, and patience to go through with this for buyers who are just shopping around.
Needless to say, CIF is the best and most secured way to go for overseas buyers. Although usually not offered on small to medium jobs, buyers with large jobs should always demand this.
Keep in mind that even with an agreement signed by both parties with the shipping term clearly specified (i.e. CIF), there are many instances where the factories will back out of the deal and change the shipment to FOB, or worse EXW, because they later would find out that the cost of shipping to the buyer¡¯s door is much higher than their original estimation. Unfortunately, this news is usually not revealed to the buyer prior to receiving the deposit to start the job.
What can a buyer do if the overseas factory changes its original term of shipment? The sad truth is that there is not much anybody can do. While international court is always a possibility, or even trying to sue the factory in China may be considered, the factories who make this kind of practice for a living have already calculated that such possibilities are very slim as the cost, time, and complexity involved in these actions are well beyond the cost of the job in question. This is especially true for small to medium sized jobs.
With our assistance and support, FOB would be acceptable for you, even EXW, since we are watching on from very beginning advance payment to balance clear through our export agent bank account operation (regarding why export agent needed please go to export license section
With the Chinese factories advertising themselves on the various Internet search engines, most buyers are lead to believe that the same factories will be able to communicate with them and attend to their needs in a professional manner.
Actually, the communication barrier is usually the root cause of most of the issues relating to unsatisfactory results at the end of the job in real business. Just because these factories can translate what they do into English language, it does not necessarily mean that they can interact with the buyers in a professional and real job setting.
-Quality control risk
A simple conclusion is that Chinese factories that do not have the proper quality training and understanding of overseas markets which will not be able to produce jobs that are acceptable.
The only way to rectify the situation is for the buyers to lower their expectation of quality. Sad but true.
-Packing damage risk
Package is the most commonly overlooked item in the entire Chinese production process. Many jobs arrive damaged or become liable for additional freight and customs costs due to lack of knowledge and experience of the factory in question. Details from the materials of the cartons and pallets to how and how many are packed per packaging unit will determine the final quality and cost of the shipment.
For inexperienced and insincere Chinese factories, this is also one of the many ways to cut back on their own cost since they do not suffer the consequences of their fallacies. The buyer will end-up with inferior products at added costs that the factories will never be legally bound to remedy.
-Exporting legal risk
In order to export from China, the factory must have the necessary government granted license.
In China, 99% manufacturers don¡¯t apply for the export license. Even with it they will also export through a broker, since they hope to be away from endless headaches brought by invisible hands from SAFE (Administration of Foreign Exchange ¨C China has the most strict foreign exchange restriction in the world), CIQ (China Inspection and Quarantine), Tax Bureau, and local Customs.
Without export license, the job must be handled through a third-party trading company that knows nothing about the product they are handling, since most of these so called ¡®export & import companies¡¯ are state-owned on behalf of local governments.
The down-side of this is that the party who is doing the manufacturing is not handling the exporting, and the party who¡¯s handling the exporting wishes to know nothing about what the job is. If something should go wrong, and they often do, there will be a lot of finger-pointing in a language and custom that no buyer will understand. Furthermore, financial transaction is made more complicated, risky, and takes longer in this situation. Buyers should expect a longer turn-around time for all parties involved to clear the payment before job begins and/or ships.
- Legal liability is not a concern for Chinese factories. Buyers are on their own.
While there may be some form of legal recourse should the buyers seriously wishes to navigate through the complex and often futile course of international and/or Chinese laws, this usually is not classified as a "last resort.¡±If something should go wrong, it is usually resolved based on the integrity of the Chinese factory in question. In other words, it is entirely up to the Chinese factory if it wants to resolve any issues with the buyers. This is the greatest risk of all. When a buyer ventures overseas, not just to China, but anywhere in the world, the risk of not getting what was paid for is always there. Different countries have varying degree of such a risk.
Buying from china is international trading. It has all the risks involved with foreign trade and even more. The fact that business culture and practice are totally different from western world makes buying from China directly that much more risky.
With us, sourcing will be easier and safer:
¡¤The time and expense in an overseas representative visiting China and taking valuable time away from other projects
The inability of communicating from a distance, resulting in misunderstandings that can prove costly
¡¤Lack of control over the quality of the raw materials used (yes, they do differ between China and the rest of the world!)
¡¤Absence of final quality control
¡¤Local talents watch on your business here 24 hours a day.
¡¤Problems come around corner anytime but we are the problem shooter here on behalf of overseas.