One Man’s Challenge is Another Man’s Treasure - Home Building Materials, part 4

Sourcing products from China can seem like reaching an arm into a black-hole. You are unknowing to the supplier’s results of quality, meeting deadlines and expectations or even knowing if the product will sell in your market. Leveraging its experience in the construction industry, Sourcejuice continues the “One Man’s Challenge is Another Man’s Treasure” series giving you an insight into what’s on the other side.

This article will discuss which items can be maintained in inventory for small to medium sized building supply houses. We will also discuss items that can be sold to commercial real estate developers.

In the previous articles we discussed what products builders buy. These sourcing guides are geared toward products that can be sold direct to builders because they are the big ticket items that relate to the largest pain-points on builder’s budgets.

Part 1 - Plumbing, Sheetrock, Trim, Stairparts, Trim, Kitchen Cabinetry

Part 2 - Knowing your customer, the builder/developer

Part 3 - Appliances, Hardwood Flooring, High End Roofing Tiles, Custom Doors, Fireplaces, Travertine Tile, Lighting

Commercial Real Estate Developers
There are an unlimited amount of products that can be sourced relative to the development of commercial real estate or subdivisions. Not only the materials for the buildings themselves, but the components to get the property ready to build on can be sourced.

Here is a budget for development of a 5 lot subdivision in Georgia. From this budget you can derive a short-list of items that can be sourced for or sold to commercial developers. Keep in mind that most US subdivisions are atleast 40 lots, so these budgetary figures will grow accordingly.

•Sewer Pump Station Components - on properties that include land mass with a steep incline to the street, a pumping station will be required to service the sewer. Stations for the commercial application can range from $80,000 to $375,000. These stations include, sometimes county specific specifications for their construction so a scenario where sourcing an entire station for mass production might not apply. The components contained within these stations are expensive and could be produced over-seas for use in implementation into these stations. These components can include: high pressure pumps, electronics used for management and monitoring, steel deck plating, valves, etc.
Here are some schematics that can help in determining feasibility of importations of products for the construction of a pumping station.

•Pre-fabricated Metal Buildings - Commercial development contractors in the US typically do a “design-to-build” turn-key solution for metal buildings. You either provide them specifications or architectural plans and they quote the project, many times including development cost for the property. From there, the major components that make up the frame of the building are produced elsewhere in the US and shipped to the construction site for installation. The industry of importing these buildings in pieces, pre-fabricated from China is soaring and there companies that have been engaging in this business to manufacture pre-fabricated buildings for developments in the US since 1995. Check out this article. With the residential housing market at an all-time low, developers have begun to diversify their portfolio with commerical investments. Are these developers looking or already performing this business in China? It would pay to find out. The industry for metal building’s “revenue for the year 2007 was approximately $7.9 billion USD, with an estimated gross profit of 27.9%. Import was valued at $183.2 million USD from 34 countries.” Check the market research here. If you can source these products yourself and have the commercial real estate contacts, then you could be the next major player.

•Lamp Poles - these items can be purchased or leased from the power company during final stages of development, but the developer has the option of installing them themselves. These poles are relatively expensive so sourcing them from China is an ideal product to import. Their construction is modular so shipping can be maximized on this import.

Check out a subdivision development plan with lamp pole location highlighted. I see at-least a container of lamp poles just in phase 1.

•Sewer and Storm Drain concrete conduits
•Water and Fire lines
•Fire Hydrants
•Street Signs - If you want to purchase street signs for developments without going to China, buy from someone who does. Check out Global Home Construction.
•Retaining Wall Blocks
•Erosion Control

Power and Cable television lines are typically purchased and installed by the service providers themselves. During the development cycle a developer will provide blueprints indicating the layout and they handle the rest. These items are not good sourcing items unless you have a relationship with one of these providers. These lines that run inside the house may be good housing items to source as they can be sold directly to electrical contractors.

Small to Medium Sized Building Supply Houses
Sourcing items in this category are ones that:
•Will have a high volume of sales, maintaining constant amount of inventory while still purchasing regularly every 30 days.
•Items that are common purchases to builders
•Have good margin for profit after import
•Low individual cost per item
•Are not typically items sold by a lumber yard
•Can be mixed with the rest of your US domestic products for a seamless product-line.
•Can be packaged as a turn-key solution for installation

These items are include:
•Interior trim and moldings
•Interior and exterior door locks
•Exterior doors: front doors, metal doors, sliding glass doors
•Exterior cornicing materials
•Kitchen cabinets
•Contemporary Chinese lavatories
•Plumbing fixtures
•Lighting fixtures and fans

dylan@sourcejuice.com // Dylan Blankenship

August 25, 2008 | Filed Under Sample Reviews, Sourcing Guides | 1 Comment

Importing over the Internet? Challenges, Opportunities, and Hedging Your Bets!

Is it possible to source products from the Internet without ever stepping foot in China? The answer is yes! I am a proven example of this fact. It may surprise many, but there are reasons why sourcing remotely may be your best bet.

Navigating China and the language is as difficult and vast as the Great Wall. You will need a tour guide or a representative from the factory to take you around. I say tour guide because the factory rep will not take you to the other factories you need to visit (unless you bring a lot of RMB). If you do make the trek to China, you will need to use the Internet to at least make a list of good candidate factories. You can use an intermediary or trading company to locate these companies before your arrival as well.

There is without a doubt no substitute for being in China, do the face to face with the factory and get a good feeling for product quality. This face-to-face is my primary reason for visiting before buying. Shopping on the Internet can have its hazards. For more information on why an intermediary can also be useful, please read the SourceJuice article Beware the Middleman and Seek the Intermediary.

I have successfully sourced and imported, from start to finish, a wide array products with lucratively positive results. It is important to remember that with any business there will be bumps in the road; importing from China is no different. If you fail once, research and then try, try again. The statistics in United States are that out of 10 businesses, only a single one is destined to succeed. For this reason, I recommend importing multiple containers of different product at one time. This increases your likeliness for overall success (like diversifying your portfolio). Of course you’ll need to have the buyers set up!

If you import two containers, one may break even in cost and the other makes. If you had only imported one container and it was the break even one, you might stop importing all together, thinking that there is no profit potential. To maximize your chances for success, read Digging Deeper series for some solid information on extra costs to expect, based on my successes and failures.

Let’s look at some of the challenges that sourcing from the Internet has:

Time zone difference (12 hours or more depending on Daylight Savings in the US)
Zero responses to communications from most factories or trading companies
Outdated and unavailable product models on websites
Lack of product samples available
NO WEBSITES at all!
Poor photography of products
The items you are looking for are available, but their presence on the Internet has possibly not yet made a debut.

The list is endless…….

What can you do to help wade through the challenges?

Signup for the Pro version of Skype, get a long distance calling card and get familiar with dialing +86 phone numbers.
Befriend a Mandarin speaker in the US to use on phone calls. Use all the resources you have at your disposal.
Get an Intermediary or reputable trading company contact
Meet every international trading entrepreneur you can, as experience is the best teacher. Losing money on an import venture is the second best teacher.
Get in the local trading circles of small import shops (they are everywhere and you have absolutely no idea until you stumble upon them). In Atlanta there are shops importing granite, sanitary items, furniture, lighting, doors – come on…. EVERYTHING. Each of these shops usually has company names completely unrelated to their business. I spent a lot of time at these locations trying to bring their inventory back to the Internet, working partnerships, etc. Learning how someone else runs his or her business is essential for your success. The best teachers are the failures. I have seen more full warehouses with no customers/sales than you can even imagine. I have seen huge warehouses with no inventory system or uniform model number scheme.

Here is your short-list of small import shops in the Atlanta area:

Panda Kitchens and Bath: http://www.pandakitchen.com/ : Cabinetry

United Corp Intl: http://www.unitedcorpintl.com : Highend spa/steam rooms, Jacuzzi tubs, lavatories and bath cabinetry (Chinese modern pedestals and classic wood cabinetry)

Homeware Building Supplies: http://homewaresupplies.com/ : a little of everything – cabinetry, copper, glass and granite sink bowls, lighting, hardwood flooring, modern Chinese pedestal sinks.

Stone City, Inc : http://www.stonecityinc.com/ : cabinetry

Don’t get frustrated when talking to owners of above businesses – I am certain now that I am in China that their job is to discourage you from stealing their profits.
The best advice I can give is finding a good customs broker, they are worth their weight in gold. You do not know everything there is to know about logistics and customs regulations, but they do. In addition, they have lots of contacts with people importing a broad range of items – ask them to make some introductions. It gets no better than Encore Forwarding out of Jacksonville, FL. Even if you are not clearing goods at the Jacksonville port they have offices that work in concert on any port you need. Encore also works with a logistics company Triple Eagle for a turnkey import transportation and customs solution for your goods.

May 14, 2008 | Filed Under Sourcing Guides | Leave a Comment

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

Welcome back to SourceJuice and the treasure of knowledge in sourcing for home building materials and products that truly make sourcing from China a golden opportunity for those willing and determined to reap the benefits of going direct to the source. If you haven’t already read the first two parts to this series, go here to #1 and #2.

Now to part 3 as SourceJuice explores the different components of home building materials and products.

Appliances – every house, condominium or apartment has them. There are many pieces to fitting a home (microwaves, vent hoods, stoves) and builders absolutely love to save as much money as they can – they want to pay as little as possible. However, this is an area to stay away from as builders have a period of warranty they must deal with and parts for Chinese appliances are hard to acquire. Even if you get a builder crazy enough (trust me all builders have crazy in them), it will be a hard sell for the final customer - the homeowner who is going to ask why the appliances are not name brands like GE, Whirlpool, Jenn-Air, Sub-Zero, etc. So SourceJuice’s advice, in the US and Canadian markets at least, is to stay away from this area and save yourself time and money for other areas as noted below.

Hardwood Flooring – there is competition in this category from contractors, national wholesalers like Space Flooring and online retailers like flooring.com. Check prices everywhere before you get into this game. This is one of the most expensive items to the builder and one of the better opportunities if done right. This is where private labeling may make sense to reap even larger benefits. Most builders check prices and look for cheap and easy solutions, but just because you are the cheapest does not mean you will get the deal. Be cautious of laminate hardwood flooring as builders will opt instead for cheaper engineered flooring. Also be cautious of hardwood flooring materials with protective sealing materials, when you spill something the liquid is never able to escape, causing mold. Builders are aware of this and most will stay away from these products.

High End Roofing Tiles - this is your million dollars and more opportunity just waiting for new businesses to enter the market. Look for slate tiles from the same companies you purchase granite through in China. Many builders are also looking at synthetic alternatives to save a buck. Without a doubt, this is an area where price is critical and so are choices. Not a bad place to also start your own private label brand and build a long term business.

Custom Doors - builders spend an incredible amount of budget dollars on custom doors. Many of the reasons builders do not buy doors, in general, direct from a distributor is because of the finishing that is required (hinge mounts, door knob holes, etc). When we are talking custom doors, we are talking Georgia Art Glass. This is a very detailed industry with standard sizes, glass types, etc. Know your business before getting into this area but SourceJuice believes this is one area where unique ideas and designs can truly bring you significant opportunities to make money. Don’t just think doors here, think lifestyles, security, glass and wood, metal and wood, sculpted, embedded with granite fixtures, and the list can go on about how unique design and your ideas can create new and highly desired models for people and builders looking to create a unique look for their homes. Another great place to start your own private label products that may start as your brand but soon could be a name brand if done right.

Fireplaces – Great margins, little market saturation, every house needs one (maybe more). Another area looking for innovative products and a great way to think about how your partner companies in China can, with your ideas or theirs and some unique designs to sizes, create a very large business.

Fireplace mantels - look into marble slate, crushed limestone, plaster composite and low end mantels for opportunity and to be unique. Builders buy a lot of mantels from companies like Valencia Accents. You could easily do the same with the right partner in China.

Travertine Tile - If you are in the USA, go Mexico. You can bypass steam ships, railroads and import duties thanks to NAFTA. The only cost you will incur is product and domestic freight across the border to your loading dock (approximately $1,300USD). Need a suppler, try Impameric. This is an expensive item on builders’ budgets, but watch out for Home Depot (they have the price jump on everything) and other large home improvement retailers as they will be tough competition. For other markets in other countries, once again China is your factory and partner unless your country is imposing tariffs.

Lighting & Ceiling Fans - there are a lot of the big companies like Progressive Lighting in the game already manufacturing overseas. What SourceJuice has noticed recently are import companies bringing in light fixtures with no pre-planned pricing schedule. This market is relatively new to the small import shops and they haven’t quite figured out pricing yet. The major retailers (Home Depot, Lowe’s, B&Q, etc.) all have a stock of their own private label products and are making good margins here. There are thousands of ceiling fan and light fixture manufacturers in China and this creates great opportunities for smart importers. Get unique, great looking, upscale product at great prices and you have opportunity. Once again, everyone with enough determination can buy product from China at great prices (even with all the changes in currency, labor, raw materials, etc.) but the key is not just buying and selling but rather giving yourself a competitive position.

SourceJuice is a firm believer that companies succeed by offering value that is not so easily found – that means you either have great prices and decent product, great products at decent prices, or unique products at whatever price you can set with the end buyers. Looking back at this article and all the prior ones in this series and what you will find is that there is opportunity everywhere. So many companies, started by 1 or 2 persons, started from nothing and made fortunes. The companies and people that make fortunes and continue to make fortunes are always the ones that are excellent in one or many ways and the real treasure is in being unique, reliable, fast, and knowing your business.

Sourcing is for the strong, the determined, and those who know that it is not easy but that is why there is opportunity and that is why every treasure takes a map. That map is not easily found but for those of you reading this should already know that you are far more prepared and far more knowledgeable than most of your competition and yes – information is power. Now you know why most of your competitors or even others outside of your business do not want to share their supplier and their buyer information – because that is power, that is knowledge, and that is their supply and demand chain.

Next week we will bring you part 4 in this series. Thanks for reading and see you soon at SourceJuice.

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

May 4, 2008 | Filed Under Sourcing Guides | 1 Comment

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 | 1 Comment

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 | 4 Comments

Share Your Expertise: David Anderson on the China Granite Industry

In a follow up to Dylan Blankenship’s article Let’s Talk Granite - Pre-fabricated Granite Import Guide, we attempt here to help readers better understand the structure and makeup of China’s granite industry. We explain where China’s main granite suppliers are located, the types of granite found in these locations, and give a brief introduction to the uniform numbering system used in the country.

Whether you are looking to purchase high quality, finished granite countertops (slabs or prefabricated), granite tile, dimension stone or granite sinks, they can all be found in China at competitive prices. According to the General Administration of Customs, China exported over 1 million tons of granite in the first 10 months of 2007 at a value of approximately $157 million US dollars. It is estimated that Chinese granite accounts for around 17-20% of the world’s granite production.

The main production centers are located in the provinces of Fujian, Guangdong and Shandong. These three provinces account for 85% of China’s stone production. Smaller production centers can be found inland in Sichuan, Shanxi, Anhui, Hebei, Guangxi, Inner Mongolia and Xinjiang. Have a look at the map below for a more visual look at China’s granite production areas.

With over 80 varieties of granite, Fujian is China’s largest granite producing province. It employs 15,000 manufacturers and is home to over 5,000 granite quarries and as many importers and exporters. Shuitou is the largest production base in the province with over 3,000 manufacturing facilities operating, including the majority of Chinas top granite suppliers.

Guangdong is a large province in the south east of China. It has more than 700 granite quarries scattered throughout the province in the cities of Lianling, Xinyi, Chaoyang, Jieyang, Gaozhou, Yangjiang, Taishan, Huizhou, Zengcheng and on the outskirts of Shenzhen. There are around 4,000 manufacturers mining some 30 varieties of granite.

In Shandong, the cities of Rong Cheng, Laizhou and Linyi are responsible for the majority of the 40+ varities of granite found in the region. Shandong’s most famous granites are Jinan Green which is very dark and also called Jinan black G3701, Isle Red, also called Peninsula red G3786, General Hung, also called Piyi General red G3752, Liu Ports Red, also called Laizhou oriental cherry red G3767 and China ash, or Laoshan grey G3706.

Have a look at the table below for a clear overview of the types of granite found in China, by province:

Types of Granite Located in China

Granite found in Fujian	Granite found in Shandong	Granite found in Guangdong
Jinjiang Bacuo white G3503	Laizhou sesame white G3765	Puning big white flower G4439
Quanzhou white G3506	Wendeng white G3760	Guangning east white sesame G4422
Haicang white G3523	Pingdu white G3755	Guangning rosy spots G4421
Xiaocuo white G3516	Zhaoyuan pearl G3783	Xinyi thin twists G4419
Hongtang white G3514	Mengyin pink G3778	Xinyi black stars and clouds G4416
Nanan snow plum G3508	Shanyuan flower G3757	Xinyi spindrift G4418
Jinjiang white in black G3516	Mengyin spindrift G3777	Guangning dark blue stars G4420
Luoyuan oriental cherry red G3563	Laizhou oriental cherry red G3767	Xinyi black G4417
Zhangpu red G3548	Piyi General red G3752
Anxi red G3535	Zeshan red G3764
Wuyi red G3528	Rongcheng Jingrun red G3784
Nanping Minjiang red G3559	Laoshan grey G3706
Nanping black G3539	Jinan black G3701
Pucheng Baizhang black G3577	Wulian leopard-skin G3742
Fuding black G3518	Rushan black G3770
Dayang black (A) G3538	Mengshan flower G3776
Shaowu green G3599	Pingyi peacock green G3791

In order to help buyers and sellers more accurately identify and trade different types of granite and other stone, in 1998 the China State Administration of the Building Materials Industry devised a uniform numbering. The system gives each variety of stone a letter and 4-digit number. For example, Fuding Black is denoted as G3518. The letter represents the type of stone, G for granite, M for marble, etc. the 4-digit number consists of 3 parts. The first 2 numbers specify the province or municipality the stone originated from, for example, Fujian is 35, Guangdong is 44 and Shandong is 37. The 3rd digit relates to the colour, characteristics and patterns on the stone and the final digit associates the stone with the specific quarry from which it originated.

Here is an extensive list of Chinese granites and marbles and conversions for the updated and original numbers. When dealing with Chinese granite suppliers, be sure to use this numbering system in all documentation and correspondence. it will save trouble down the road and can help ensure you get what you ordered.

Granite and Natural Stone Tradeshows in China

If you’re interested in starting or expanding your granite or other natural stone business, here are some of the largest trade shows for you to attend:

STONETECH SHANGHAI
Date: April 8-11, 2008 (every two years)
Location: Shanghai New International Expo Centre
Description: This exhibition takes place every two years and includes exhibitors from international stone processing, machinery and equipment and stone products.

CHINA STONE
Date: October 21-23, 2008
Location: Yunfu International Stone Materials Centre, China
Description: This fair is promoted as an international stone materials science and technology fair.

XIAMEN STONE FAIR 2008
Date: March 6-9, 2009
Location: Xiamen International Conference & Exhibition Center, Xiamen, China
Description: A fair exhibiting stone and stone machinery

ABOUT THE CONTRIBUTOR

David Anderson is Managing Director of GMC Group Ltd, a China-based
business services firm specializing in business and market development
programs for international companies seeking new or revitalized growth
in global markets.

March 22, 2008 | Filed Under Share Your Expertise, Sourcing Guides | 10 Comments

Sourcing from China Over the Internet, Part 1 of 2

More and more we’re receiving inquiries from readers who are interested in purchasing product for import to the United States over the internet. It seems most people are interested in using either Global Sources Direct or Chinavasion, although there are likely many more companies offering this service.

Since you don’t need to work with factories directly, can order from the comfort of your own home or office, and use a credit card for payment, this can be a reasonable way to begin an importing venture, particularly if your initial quantities are low enough to use air shipping.

Fundamentally it’s important to understand that even though you may be purchasing in small quantities and using air shipping, you are still IMPORTING! There are rules and regulations involved when importing and it’s important you know the details of your transaction or you may be surprised at your final cost. For example, it’s easy enough to purchase food items or clothing made from certain materials online, but if there are import restrictions or quotas in place for this type of item, it may be seized or levied a high duty by the US Customs and Border Protection (CBP) once it hits the dock. If this happens, it’s your responsibility as the importer and not the responsibility of the company you purchased the product from.

All shipments arriving from outside the US must include certain information required by the CBP. While a U.S. Customs and Border Protection Declaration form is obtainable at most foreign post offices, declaration forms do vary from country to country and don’t always have all the information necessary. It is important to know that foreign shipments that are not accompanied by a U.S. Customs and Border Protection declaration form and an invoice may be subject to seizure, forfeiture or return to sender. You should make sure the seller is providing the following information, regardless of whether it is asked for or not on their own paperwork.

1. Seller’s Name and Address - Self explanatory.

2. Description of the item(s) in English - This is a legal requirement. You need to be as thorough as possible on the description. It is this description that determines the classification number (HTS Code) for the duty. It’s important to include all the main materials that are being used in the product. For example, ‘Scarf’ is not sufficient. You’d want to specify that it’s a ‘Silk Scarf’, or an ‘18-karat gold rope necklace’ instead of just ‘gold necklace’. If your description is not accurate, you could end up paying the wrong duty rate. Even worse, if you’re deliberately misleading (or the CBP thinks you are), inspected packages could be seized, you’d receive a fine, and you’d still be liable for the total cost of your packages, not the company you purchased from.

3. Quantity of Each Type of Item Being Shipped - For example, two watches (14-karat gold, 17 jewel), one leather purse.

4. Purchase Price in US Dollars - You’ll need to convert the cost into US Dollars and provide both the unit price, and the total cost for all items purchased. Many sellers will offer to understate the true cost to help the purchaser avoid duties, but this is illegal. Sometimes sellers will also understate the value of the goods to avoid package handlers stealing the goods. Therefore, you should always insure your goods, as this is the best way to protect yourself.

5. Weight of the Item(s) - Self explanatory.

6. Country of Origin - Seemingly self explanatory but it’s not. This is the country the product itself was produced in. For example, let’s say you’re purchasing gold necklaces from China but the clasps are actually made in Cambodia, you need to specify that.

March 9, 2008 | Filed Under Sourcing Guides | 1 Comment

The Right Suppliers at the Right Price; RFQ Strategy and Cultural Considerations

Finding the best supplier to manufacture your product and negotiating the best price can be a lengthy process requiring a great deal of research, a bit of strategy, a dash of cultural understanding and perhaps even a touch of luck.

We came across an interesting company called PassageMaker, headed by a gentleman from the United States named Mike Bellamy. According to their website, in 2006 PassageMaker became the first (and perhaps only) medium sized, 100% US-owned, assembly/inspection company in Shenzhen possessing the following: In-house licensed custom’s brokers, Full import-export rights, and authorization by the Chinese government to process Value Added Tax (VAT) rebates.

Mike has done some speaking engagements over the past few years and one of them is titled, “Sourcing Strategies - Find the right suppliers, assure quality and avoid knock-offs on a limited budget”. The videos are posted on YouTube in 4 ten minute clips. We’ve watched the first two, which are quite good, and have our ‘takeaway notes’ for our readers to review. In addition, we’ll post links to the videos below for easy access.

GENERAL

1. China, although uniquely different from the West, is very open to western business practices and you should not be worried about cultural mistakes. The Chinese don’t expect you to know their culture or language and are very forgiving of mistakes and cultural misunderstandings.

2. There are many factories that make excellent products but aren’t good at marketing themselves to the world. There are other companies that are excellent at marketing but aren’t factories themselves and misrepresent themselves to potential customers to win deals.

3. The areas to focus on are the Pearl River Delta which is in the Hong Kong/Guangzhou area and the Yangtze River Delta around ZheZhang and Shanghai. They both have different histories. The Pearl River Delta was designed from day 1 for manufacturing for export. The Shanghai area has a long history of manufacturing but developed to service the internal market.

4. How to qualify a vendor on a limited budget - use web directories and trade shows to find new suppliers but visiting the production area and walking the line is the only way to see that they really make the product.

5. The issue with dealing with trading companies is that there is no direct line of communication when there is a problem. Trading companies may not understand the product as well as the factory and may not be able to handle the issues that arise.

6. Hold negotiations at the factory. To see if they’re really making the product, try to spend as much time at the factory as possible. Look for signs you’re being duped such as the business card addresses of all the people not matching or if the person who is giving the tour of the factory doesn’t seem to know all the people.

COSTS

1. Tooling and setup costs should be quoted separately and compare the quality of the tooling among factories. Often longer lead times are required for better quality tools with higher grade materials such as steel.

2. Gather your quotes using the same incoterms - Mike prefers to use EXW (Ex works), which essentially means ‘finished and available at the factory’. SourceJuice wrote an article comparing FOB and CIF, detailing what’s included and what’s not.

3. Be clear on your quality standards and acceptable levels of defects as this may significantly affect pricing and you want to be able to compare applies to apples across factories.

4. Specify the grade of the materials in your bill of materials. There are many grades of metals and plastics and you need to be clear!

5. Ask them to identify their VAT structure. Some of the smaller suppliers are not paying VAT on raw material purchases and thus not getting the rebate when they export. This is ok for small quantities but when you need to ramp up, they may not be able to keep the same deal. In this case, you can expect a spike of 10% or more! For large companies, if you dont ask about the VAT refund, they may pocket it. For more information on the recent changes (and a general explanation) on VAT rebates, check out the SourceJuice article 4 Reasons Why Sourcing in China Will be More Expensive in 2008.

NEGOTIATIONS

1. Orient yourself towards the decision maker and not necessarily the guy who understands you best because of language.

2. The guy at the top usually doesn’t speak as much English since he’s older and grew up when China was a closed society.

3. Watch the Bai Jiu!!! For those who don’t know, Bai Jiu is a traditional Chinese alcohol made from rice. It’s very strong and it’s typically part of dinner banquets and can be abused easily with repeated calls for toasts. You don’t want a lopsided agreement and if you start to drink and then stop you may offend. Better to just say you’re allergic or that you can’t drink. Mike commented that he brings a bottle of tequila and when they do Bai Jiu shots, Mike requests that everyone do a tequila shot! That stops the drinking!

4. If you’re looking for a little strategy, bring a translator with you even if you or your colleagues speak Chinese. Don’t speak any Chinese during the negotiations. After a round of price discussions, the translator should excuse herself to go to the bathroom. The Chinese factory may continue to talk about pricing strategy with you in the room. — Just be sure they don’t pull this on you with English!

TRANSLATION

1. Use a professional translator who is familiar with your field if you don’t speak Chinese!

2. Go over the technical terms in advance and make sure you’re in sync. Otherwise your translator may not know the details of what you’re trying to communicate.

February 18, 2008 | Filed Under Negotiating & Strategy, Sourcing Guides | 6 Comments

7 Ways To Avoid Getting Scammed By Suppliers Online

Let’s face it - it’s a dangerous world out there! With plenty of scam artists trolling Alibaba and the like seeking to separate you from your hard earned importing dollars (or euros or…), how can you be sure that your supplier is for real? SourceJuice comes to the rescue with the top 7 ways to avoid getting scammed.

1. VISIT!
Don’t underestimate the value of seeing the factory and meeting the people yourself! If you’re about to embark on a large importing project, the time and money spent on coming to China for a short visit may pay off in spades. Round trip flights from the US can be had for just over $1,000, hotels and food are relatively cheap, and the factory will likely pick you up from the hotel, take you to visit the factory, and wine and dine you for free. For less than $2,500 and 1 week of your time, you can personally verify that everything is up to snuff.

2. Don’t Blindly Trust Website Certifications
Is it true that the chances of a factory with ‘TrustPass’ or similar is less likely to rip you off? Possibly. However don’t automatically assume that because a factory has website certifications that they are trustworthy. Many website certifications can be purchased and/or rely on a few brief visits or phone calls.

3. ‘Feel’ The Delivery Terms
Recognize the legitimate fees that go along with importing such as duties and shipping. If you find a supplier willing to lower the cost on the shipping documents to avoid fees or are willing to send the goods to you as a gift to avoid duty fees, what other types of shenanigans are they playing?

4. Avoid Purchasing ‘Too Good To Be True Items’
No there are not factories in China that can sell you lots of cheap authentic iPhones or iPods or Nokia phones or Nike shoes or… If you are trying to purchase designer items or brand name items, be careful as this is the area that most scammers operate.

5. Consider Using A Trading Company
If you can’t do your own due diligence because of lack of time or knowledge, hire a professional! Trading company fees typically range from from 3-5 % of the total order. If this is small potatoes for you compared to the potential of it all going wrong, let the man on the ground help you out.

6. Use A Letter Of Credit
Never send money Western Union or to a personal bank account. Watch out for Paypal, although sometimes it can be legitimate. Never pay in full up front unless someone on the ground has inspected the goods. Even the typical 30% up front for TT payment is risky when working with a new supplier. Using an LC is the safest way. The factory has the assurance of the bank and payment isn’t released until the goods arrive. True you still don’t have the ability to inspect the goods for quality issues before payment is released, but financially it’s the safest route.

7. Use Common Sense!
The old adage.. if it’s too good to be true, it probably is!

February 13, 2008 | Filed Under Sourcing Guides | 3 Comments

Let’s Talk Granite - Pre-fabricated Granite Import Guide

It’s one of the hardest substances on the planet, its classy and its profitable! Walk with me examining what has been one of the most profitable importing ventures to date. You have to have networked into the right business circles, but pre-fabricated granite has rock hard margins for selling to or consulting for real estate builders/developers/tycoons or granite shops.

Granite in a Nutshell
This is an immensely labor intensive business, which makes a great recipe for a Chinese manufacturing and import venture. The material doesn’t cost that much so the majority of the cost is from the middleman and fabricator.

This is generally how granite countertops arrive in your home:

Granite Process Diagram

There is a solution that places you as the main link between the quarry and the builder. Let’s buy from the source, do all the fabricating in China, import it and sell it direct to the builder. Sounds complicated, it’s not, but you have to be meticulous with your work.

Overview
This business model will only work for selling to a client that has a minimum of twenty homes that will need granite. Track home builders, condo developers or high end apartments are the main types of companies to target. Granite fabrication shops are also good customers, but we will discuss that sales model later. This also works for restaurants or commercial businesses depending on their size. You will need to find clients that have a large enough order to fill up an entire 20ft container worth of granite countertops. If you do not fully fill the container then you are losing profit margin. When you have imported the granite, you will open your container and find crates containing pre-made granite countertops. What is required for installation is to unpack the crates, set the countertops onto the cabinets and glue the undermount sinks. That’s it!

Multiple Pre-fabricated Countertops

This is how our business model will work:

1. Find a client that you can either sell granite pre-frabricated and ready to “drop in” or work out a consulting fee to do it for them (if they do not want to pay you the money direct). The key here is to take measurements just as any other granite shop would either from architectural plans or from cabinetry already installed. The order needs to be placed a minimum of 45 days ahead as this is how long it will take to produce and ship the granite to the US.
2. Take those measurements and enter them into Microsoft Visio or a CAD application. This is often referred to in the granite industry as templating. Diagrams should include exact measurements for the granite that will be made including: locations for sink holes, indications of which sides are polished and overall length/width. If this is a kitchen, for instance, break the countertops into sections. As an example, here is a a diagram from a recent order for a developer that performed an apartment to condominium conversion and needed 114 condos worth of granite :

Diagram of Granite

3. Enter all the dimensions from each diagram into a purchase order list like this (this is just a section):

Granite Purchase Order List from Diagram

4. Email order and diagrams to your granite or stone fabricator/manufacturer in China. I would recommend that you have the manufacturer arrange delivery and logistics. I have personally purchased a number of containers of granite from China Newstar (www.stone-export.com) and have nothing but great compliments about their craftsmanship/work.

5. Arrange payment (for deposit) via international wire transfer or letter of credit.
6. Accept delivery either at a commercial location with a loading dock or have the product transferred to a flat bed tractor trailer. This can be done in conjunction with a customs broker and domestic freight provider. Encore Forwarding (Jacksonville, FL) can handle this type of request, they have offices in most major US port cities. In any event, you will need a fork-lift to unload the crates.
7. Partner with a capable contractor for installation. They will be getting 20+ houses of install so you can negotiate for a very reasonable price. Often times the builder has staff that can handle install on their own.

Areas of Cost and Additional Profit Opportunity
Let’s first examine the various areas where margin can be increased.

Chinese Local or Import Granite : The way I see it, stone is stone. You could get a nice Italian suit or the same suit without the label, your choice. Imported products are typically more expensive than domestic. When it comes to granite, the savings can be enormous. You obviously want to request samples from the manufacturer to compare, but I would recommend showing your customer the Chinese granite samples with a “this is in the style of Uba Tuba” disclaimer. If the customer wants the real deal, sell it to him. The real cost savings to the customer will be better in Chinese granite. Compare the two colors below.

Compare Uba Tuba to Chinese Green

Granite Fabrication and Installation : It’s important to note that the granite fabrication and installation phase is the highest factor of cost. By the time we are done, it will be the least expensive factor. The granite will arrive and be ready to drop in place.

Accessory Items : If what you have read hasn’t sold you, here is the kicker. The same company you will select to manufacturer the granite can offer you the stainless steel kitchen sinks and porcelain vanity sinks at well below wholesale. They do this so that they can cut the sink holes in the granite to exact specifications. Stainless steel sinks typically cost $50USD and the 18″ vanity sinks run $8USD.

Costs, profit margins and what to expect

Here is the overview of specifications and related costs per unit/home. This is important when discussing prices with the builder/developer. If after talking with the your client, they are interested in getting an ACTUAL quote, then ask for architectural plans to prepare a quote from. The below spreadsheet shows actual costs, is setup for a consulting-style contract and includes a $250 markup per home. At forty homes, using this schedule, your total profit from one container of granite is $10,000. Profit margins are much higher if you “sell” the granite to the builder just as a would a local granite fabrication shop. This pricing is also based upon the import of Uba Tuba and additional profit can be obtained by using Chinese domestic granite colors. This information is purely for instructional purposes and should not be taken at face value.

Cost Breakdown Overview

The comparison cost of purchasing US domestically fabricated granite would well exceed $2,364.85. This translates into a 50% savings to the builder and enough to land his business. It is important to note that this is not an installed price. Negotiating with a contractor for a reasonable installation price is paramount in keeping the margins up.

Here are some of the typical costs for importing a 20′ container of granite including sinks. These figures are from actual costs (2 years ago).

Typical Breakdown of Container

Here is an example of a multiple container quote for a 90+ unit luxury Florida condominium development. You can imagine what the granite would cost here in the states if our quote was $110k!

More importing granite cost information