Do you want to cut cost and keep your production expenses low? If YES, here is a complete guide to outsourcing your manufacturing process to China as a beginner.
Over the past two decades, there has been a constant rise in the number of companies outsourcing the manufacturing aspects of their business to China. It would surprise you to know that China accounts for at least 20% of the entire manufacturing process in the world, and a lot of technology giants, and manufacturers of electronic devices look to China for manufacturing.
Why Outsource Your Manufacturing Process to China?
One of the reasons for this is that manufacturing in China is significantly cheaper than manufacturing in the USA or in other developed countries of the world. The labor costs are very cheap, and there are a lot of Chinese factories willing to take up private labeling or bulk manufacturing contracts.
There is also easy access to raw materials, and a high level of competition in China. All of these factors make it really cheap to manufacture your products in China.
However, a lot of business owners have been victims of scammers in the process of trying to outsource their manufacturing processes to China. Most Chinese don’t speak English, and it can be very difficult to break through the language communication barrier.
There are also a lot of scam artists who constantly target Chinese E-commerce platforms because they are aware of the huge amount of money and contract deals that exchange hands on these platforms regularly. If you must outsource your manufacturing process to China, you have to follow the rules so that you can get quality products made, and you can avoid becoming a victim of scam.
Outsourcing Your Manufacturing Process to China – A Complete Guide
1. Confirm that you are Legally Allowed to Import Such Items
There are some products that you are not allowed to import into the USA and there are also items that are prohibited from being exported from China. It is important to do a proper research beforehand, and confirm that what you are trying to import is within legal limits.
2. Acquire the Required Licenses and Permits
You might need special licenses and permits to import specific items such as food items, medications, animal and plant products or copyrighted items. If you are shipping by sea freight, you may also need to file the Import Security Filing Document. All of these can be handled by a Custom Broker. You can find extensive details about the documents you might need on the US Customs and Border Patrol website.
3. Find a Manufacturer
This is the most important step. You need to find a genuine manufacturer who is able to produce high quality goods according to your specification. First, you have to figure out if what you need is a manufacturer to make your products from the scratch, or a company that can offer private labeling services, which means they would just basically stamp your own name on already-made products, or a wholesaler who can sell to you in bulk.
Once you have decided what is perfect for your business, you can start searching for suppliers that fit your needs.
You have two choices here, you can either choose to use an agent, or do the search yourself. Using an agent is safer because an agent can help you verify the manufacturer, monitor the manufacturing process, and perform quality assurance tests to be sure that you are getting what you specifically ordered for.
However, it would cost you a lot more money. Some product sourcing agents charge a percentage of the costs of manufacturing, while some charge a flat fee upfront. Some of them also receive kickbacks from the manufacturer, and all of this adds up to inflating the costs of your products. If you don’t mind the extra costs, you can find Chinese product sourcing agents to work with online. Jing Sourcing is a popular Chinese sourcing and shipping agent that you may consider using.
But if you would like to cut back on excess costs, you can find a lot of manufacturers yourself on websites like Alibaba and Global Sources or if you don’t mind travelling all the way down to China, you can easily meet, and build a relationship with local manufacturers at Trade shows. You can find out which trade shows are coming up soon by visiting China Exhibition.
I personally recommend travelling down to China the first time to build a network of suppliers which you can now begin to work with remotely. Of course, this would depend on the type, and volume of goods you want to manufacture and whether you are looking for a one-time contract or a continuous relationship. However, if you are using any of the online platforms, make sure you only use verified and 5-star rated manufacturers.
4. Establish Contact with the Manufacturer
Once you have found manufacturers that fit your description, you need to establish communication with them.
First, you have to be sure that the manufacturer is based in China because some manufacturers from other countries also use Alibaba and Global Sources.
Draft a letter to open communication with the supplier, but don’t go all out to describe your product especially if it is an idea you are trying to protect. You can simply give a vague description, and then ask them if they would be willing to have in-depth discussions with you.
You would receive responses from most, but not all the suppliers you contact so it is important to open communication with as many as possible. If you need to protect your product idea, have them sign, or legally agree to a Non-Disclosure Clause before you go all out to reveal the details of your product to them so as to avoid intellectual property theft.
5. Ask for Samples
To further eliminate unpleasant surprises, ask the manufacturer for product samples. If you are willing to pick up the costs, and you are looking to manufacture a large quantity of the item, most genuine manufacturers wouldn’t mind sending you a very small quantity as sample so that you can use this to reasonably gauge what you would likely receive from the company when you eventually sign up the manufacturing contract.
6. Get a Quality Control Inspection Agent
You cannot afford to let your Chinese manufacturer ship out your goods without quality control inspection. If the products are not made to your country’s specification, it could be destroyed at the port of entry. You have to make sure that all the specifications you gave to the manufacturer were strictly adhered to, so you need to hire a quality control inspection agent, or fly down to China to handle the inspection yourself.
You can also get quality control inspection agents online, and before you sign a contract with your manufacturer, make sure you inform them that you would be sending someone to perform quality control inspection at some point.
7. Always Use Escrow for Payment
It is always safe to use escrow payment services especially when you are trading with a supplier for the first time. If you found a manufacturer through Alibaba, you can use Alibaba’s in-built escrow system or use a reputable bank or financial institution, so that the manufacturer doesn’t get paid until you confirm that the order is fulfilled, and both parties can be equally protected.
8. Get a Shipping Agent and a Custom Broker
You need a shipping agent in China to help you ship the goods over to your base, and you also need a custom broker to help you clear your goods. Most shipping agents offer both services so just look for a reputable USA shipping agent that also has a branch in China, and can offer custom brokerage services.
9. Pay Custom Duties and Arrange for Freight Forwarding
It also helps to calculate, and prepare for custom duties before you place your order as you would have to pay import tariffs on items imported from China. Your custom broker should be able to reasonably predict what you would be expected to pay. You should also be aware that you might have to pay custom duties for samples shipped to you as well.
10. Perform Physical Inspection Final Payments: You don’t want to start getting complaints from your customers that they received damaged or poorly manufactured goods. This is why you need to do another inspection and testing of the products before you authorize that the escrow be released to the manufacturer.
You don’t have to test every single product especially if it is a large shipment, you can just do a random sampling to reveal the state of the other products in the batch. If you find any faulty products, you can talk to your manufacturer about sending them over for refurbishment or replacement.
If the entire contract was executed to your satisfaction, don’t forget to give the manufacturer and your entire team a thumbs up for a job well done, and express your desire to continue to work with them.