One Man’s Challenge Is Another Man’s Treasure - Home Building Materials, part 2 of 3

SourceJuice continues its quest in bringing you more of the world’s best import treasure maps. If you haven’t read the first part of the series One Man’s Challenge Is Another Man’s Treasure - Home Building Materials, part 1 of 3, please do so before continuing onto part 2.

To find the gold, one must know the pirate. Before we sail the seven seas and complete the series, let’s get to know our customer a little more intimately. Meet the Captain Blackbeards of the construction industry: real estate tycoons and builders.

Just because you can lower the bottom line, doesn’t mean you will get the sale. Its all about knowing your customer. Real estate developers and builders are a rare breed; they:

Like to get something for nothing
Like extra value. Importing granite countertops is the best example of this.
Utilize turn-key methods
Understand labor is cheap and have a lot of people working for them – much like Howard Hughes.
Have the ability to purchase in quantity due to access to multiple construction draws/loans.
Are impatient, time is money and interest accrues on a daily basis for them
Live on ego alone
Think on the bottom line, per house and per project/subdivision
Will always check your price against your competitors

How does this affect your sales pitch?

Push cost savings up front. That is why you are going to China right?
Massage their ego. Give them something to talk about with their colleagues. It is as much about selling cost savings as it is about the image gained by “doing business in China”.
Give the 60 day to arrival timeline early into the sale. Pick items that meet your 60 day production and logistics schedule. If the builder is already in the framing stage with rough-in inspections complete –don’t expect to sell sheetrock. Ask about new or up and coming projects. Builders are always building.
Put together packages, an easy turn-key solutions are best. Builders are running multiple projects at one time and rarely want to have to micromanage just to save a few dollars.
Certain kinds of labor are expensive in the US. Pick labor intensive products to manufacture overseas.

Stay tuned in this series for the continuation of “challenge” items on builders’ budgets.

Dylan Blankenship signature
dylan@sourcejuice.com // Dylan Blankenship

April 26, 2008 | Filed Under Sourcing Guides | 2 Comments

One Man’s Challenge Is Another Man’s Treasure - Home Building Materials, part 1 of 3

Solve the greater pain and reap the biggest reward. Every industry has it hardships and they come in different degrees, wearing many masks. If you figure out a way to solve these masquerading enigmas, then you may have the keys to your next successful business enterprise. This week, SourceJuice brings you its expertise on the building and construction industry through interviews, hard data and success stories. What are the problem items on builders’ line item budgets? Which hard goods construction products have the most margin? Which items do building supply houses stock and why? Exclusive details contained herein.

The Budget

The document split throughout this article is the actual budget for a home selling in the $700k range ($340k construction cost) in the Atlanta area. The problem items for builders are not just the costly ones. Framing, for instance, can vary in cost depending on the contractor or engineered lumber supplier. These are old-school builder experienced categories, they know how to work the system and categories like these should be avoided. What we are looking for in this budget are the items that traditionally have cost builders a lot because they have no power to decrease the price. “It costs what it costs… unless you buy from China.” Granite requires a $100,000 saw to cut with experienced laborers, a builder will leave this alone and pay top dollar for the high end product. This brings up another point, builders have access to an abundance of labor and are not afraid to take on a few extra steps in the buying/implementing process (to save a buck). It can be no clearer than this article, the highlighted items on this budget cause the most headaches and spend the most budget dollars.

Budget - S2

Plumbing Fixtures – There is a lot of margin here, do your due diligence in comparing similar products. All products that look the same have varied degrees of finishing and contain different kinds of internal parts, see Sourcejuice’s Quality Rating Systems article for more information. It is still possible to resell mid-range kitchen and bath faucets for 20% profit, but companies like e-Barnett supply are highly marketed to contractors and builders. A shoe-in is the high end luxury market for plumbing fixtures. Some high end roman tub valves, like the waterfall styles, can have hundreds of percentage points in margin. Private labeling faucets is another great way to get a niche that can propel your brand above the no name brands. Sourcejuice has you covered there too: Private Labeling and Criteria for Selecting the Right Manufacturer.

Sheetrock – hard to compete with Home Depot. Home Depot has such buying power, it is only possible to beat their price by minuscule margins. The money is had here in container quantity. Don’t expect to be buying less than six containers, you need to be buying more. In addition, to make this import venture profitable you will have to research and obtain overweight permits to utilize 40ft containers, maximizing the cost efficiency of logistics.

Trim – one of the most expensive categories for builders, half labor and half materials. In addition, wholesale manufacturing companies like woodgrain Millwork (who manufacture in South America) will only sell to wholesale building supply companies. This leaves an opening for you to sell direct to the builder. For a lot of builders/track builders, there are standard trim types used for base, crown, chair rail, etc. This makes ordering, stocking and fulfilling orders quite easy. For the luxury builders, two million construction cost, there will be many different kinds of trim, but enough to buy a whole container (or more) just for one house. A house of this caliber will utilize over $100,000 in trim.

Stair Parts – equally as good a product to import as trim. You can make this as complex or simple as you like. If you have ever seen a catalog for stair parts you will know how many pieces there are. There is a stair parts company in New York that imports over 5,000 different products, all relating to stair parts. My suggestion, stick to the basics.

Granite – if you have been reading Sourcejuice, you know by now how profitable granite can be. Point-blank, buy it prefabricated at $11 and sell it at $30. More details in Sourcejuice articles:
•    Share Your Expertise: David Anderson on the China Granite Industry
•    Prefabricated Granite Import Guide
•    Digging Deeper Series: Actual Landed Costs Examined

Kitchen Cabinetry – go modular and read Sourcejuice article Beware of the Middleman and Seek the Intermediary.

Stay Tuned for part 2 in this series, your treasure map to the building industry.

Dylan Blankenship signature
dylan@sourcejuice.com // Dylan Blankenship

April 20, 2008 | Filed Under Sourcing Guides | 3 Comments

Technology in the 21st Century - Your own factory and catalog showroom for almost no money!

Thousands of our readers are buyers who work in large companies to their own retail or wholesale businesses. Many use China and other countries around the world to base their manufacturing, if not sourcing operations. Many also outsource the entire production of their private label products to a host of companies in China that run the gamut of design, develop, manufacture, package and even drop ships the final product to the end customer.

Most however, must to some degree, own the merchandise in some form or pay for its development prior to sales. Recently, with the advent of the Internet and advancements in technology, a whole new market has been created where you really can own your own factory and catalog showroom for almost no money AND get drop shipments. This is definitely not for the big companies but for those owning their own small business to those that setup shop in Ebay to TaoBao and want to create unique products and use the technology of the 21st century, then this company and its business model may be just right for you!

Enter Ponoko – technology in the 21st Century.

Ponoko is the world’s first personal manufacturing platform. It’s the online space for a community of creators and consumers to use a global network of digital manufacturing hardware to co-create, make and trade individualized product ideas on demand.

The ponoko.com marketplace connects creators, consumers, digital manufacturing hardware and service providers to promote, make and trade products on Ponoko and social networking websites.

Here is more information from Trendwatching.com from their 8 important consumer trends for 2008.

New Zealand-based Ponoko (which works like a CafePress for 3D objects) is offering consumers a new way to turn their creative ideas into real-world objects. After uploading their own design to the website (in EPS file format), or choosing a free design, users can choose from a variety of materials. Ponoko then runs the design through a laser cutter. Besides offering access to professional tools to manufacture products, Ponoko also helps users bring their products to market. Once they’re ready to sell, members can add photos of their product to their profile page, together with a description and pricing information. Products can either be delivered to the designer for assembly before being shipped to customers, or self-assembly products can be sent directly to the end-customer. Ponoko currently only offers two-dimensional sheet cutting, which limits designs to flat objects or three-dimensional objects that can be assembled from flat pieces, but plans for 3D printing are in the works.

As well as being a manufacturing platform, Ponoko also serves as a community where fledgling one-off fabricators and designers can exchange ideas and help solve each other’s problems. The larger goal, according to Ponoko, is to be a catalyst that helps bring personal manufacturing of individualized products to the masses.

So when you get to the point where you are doing well with this business model, come back and share your stories and we may conclude with the possibility that by that time, China may be once again the place where you scale your business. So, yes, China is still in the picture and so is good old manufacturing!

April 13, 2008 | Filed Under Sourcing Trends | 1 Comment

Get Rich Quick? Thinking Bigg!

Do you ever watch television really late and see the guy selling that new real estate (become a quick millionaire) marketing package? Have you said to yourself “That can’t work…. can it?”. The answer to that question is no, it can not. However, if you are looking for a great success story then look no further than Dave Novak.

Novak is the classic “40 Hour Work Week” example. He was a cubical slave/art director turned shower and spa importer and eBay seller powerhouse. He dove into the high end spa market after concluding that there was so much margin purchasing from China that he could turn a huge profit selling at wholesale cost direct to consumers. With no experience, and for that matter, no idea if anyone would buy such a product on ebay, Novak became a success by being bold and thinking big.

I was turned on to this story by a great friend and colleague who peaked my interest one day with an email reading nothing but Novak’s website address and this question: “Dylan…doesn’t this guy remind you of the old days importing granite?“. Novak indeed followed a similar path to my own importing granite. I found a niche market, the margins were high, but would people buy?

Fortune favors the bold, Novak invested $2,000 in savings and continued to double his investment finally to the tune of $2,500,000 over a two year period. So what is Novak going to do with all that loot? Sell subscriptions to his “eBay Millionaire Secrets” website of course.

While my story starts out very similar, with a home-run importing granite, my experience with suppliers has not always been easy. Importing modular kitchen cabinets is a prime example of this and changed my approach to international trading. This is about someone who took a risk, found an opportunity in a niche market and like in poker, went “all in”. Dave Novak has been featured on Fox News, GoDaddy and StartupNation Radio. What his interviews don’t tell you is that there will always be bumps in the road along the way. Using SourceJuice as a forum, I invite Dave Novak to “Share His Expertise” on perseverance, a quality that goes hand-in-hand with success.

Every major company in the world has been started by risk takers who learned as the company grew. SourceJuice is here to educate you, excite you, inform you and learn from you through Sharing Your Expertise. We at SourceJuice celebrate all those that take the risk to do something.

So the core question that is in the forefront of everyones’ minds when doing business internationally or in China:

Is it possible? - Yes! Are there risks? - Yes.

Should I do it? - Do your research, read SourceJuice.com, invest in solid due diligence, scrap the idea and start over, talk to anyone and everyone that has done business in China…. and then the answer is Yes.

When I mean read SourceJuice, I mean read:

About real people like you that have persevered: Beware the Middleman and Seek the Intermediary
Success Stories: The Holy Grail of Risk Taking Entrepreneurs: Brits Get Rich in China
The most valuable of stories, experience: Share your Expertise Series - David Anderson on the China Granite Industry
How to get your business into motion with funding: Show Me the Money! Finding Investment For Your Import Venture
Everything you need to know to make sure the numbers will work: Digging Deeper Series - Actual Landed Costs Examined

Dylan Blankenship signature
dylan@sourcejuice.com // Dylan Blankenship

April 11, 2008 | Filed Under Success Stories | Leave a Comment

Be Clear on the Currency and Rate in Your Contracts

At the beginning of 2008, SourceJuice published an article titled 4 Reasons Sourcing from China will be More Expensive in 2008 discussing the various reasons to expect costs in China to rise. One of the main points was that the Renminbi (RMB) is appreciating against the US Dollar (USD).

We were again reminded of this by the China Law Blog, with their post Yuan/Dollar Exchange Rates. They also reference an article by CNReviews.com titled RMB appreciation and the emergence of a new Asian reserve currency. While both are good reads in general if you’re interested in currency analysis, the important point from a sourcing perspective is: Specify the Currency and Rate in Your Contract!

Spending time negotiating prices is only one part of the puzzle. As you can see in this 2 year chart from Yahoo Finance, the USD vs. RMB chart is pretty ugly. And many are expecting the USD to fall significantly further.

This creates uncertainty. For example, if you price your goods with the factory in USD, the factory is going to want to raise the price on you when the USD depreciates further. However, if you price the goods in RMB, you’re going to be spending more dollars than you expect, and possibly eroding your profit as a result.

April 8, 2008 | Filed Under Currency & Finance | 1 Comment

Reminder: Understand VAT Rebates to Bargain More Effectively

At the beginning of the year, SourceJuice wrote an article 4 Reasons Sourcing from China will be More Expensive in 2008 with one of the main reasons for price increases listed as the change in VAT rebates. Today while reading the Spend Matters blog post Keeping Track of China’s Export Tax Rates and Rebates, we were reminded of the importance of understanding what the VAT rebates are and how to use this knowledge to bargain more effectively.

As Spend Matters points out:

One of the secrets to unlocking the total cost savings secrets of global sourcing is to understand where the profit margin from suppliers is coming from (hint: in China, historically it’s often come from a VAT rebate that is theoretically payable after to the trading or export company after goods hit the water).

So as a recap for our readers: What is the China VAT tax and why do you need to know about it?

When a factory purchases raw materials, either domestically or internationally, they pay a VAT tax. For those not familiar with the term, it’s basically a sales tax. However, if the materials are used to make a final good FOR EXPORT, then the Chinese government will issue a rebate of this tax. This rebate can be as high as 25+% on some items, so this is not insignificant.

Therefore, when a factory comes to you and wants to raise the cost of a product or you are beginning a new negotiation, one of the most common reasons the factory will give for higher costs is because of the decreased VAT rebate.

So… if you can prepare yourself with the correct information on what products have changes to the VAT rebate, and in general what your product’s VAT rebate is, you are that more empowered during the negotiation process.

Our friends over at MFG.com have put together a very solid PDF, which translates all the VAT rebates into English.

April 1, 2008 | Filed Under Landed cost | 4 Comments