2 Main Problems When Buying at the Wholesale or Retail Level
Whether you’re buying at the wholesale or retail level, the main problem is two-fold: stability of the supplier & stability of the supplier's supplier!
What are the two main problems when buying at the wholesale or retail level?
The seller can be here today, gone tomorrow. The other problem is that both at the wholesale and especially retailer level, the supply chain isn’t stable.
They might have a relationship with the actual factory today, you place an order tomorrow, the quality seems okay at the moment but six months later, you place another order and the quality is totally different.
Why so many headaches when dealing with Chinese wholesalers or retailers?
The reason is that often the wholesalers and retailers are shopping around themselves looking for the lowest pricing point from a sub-supplier. Their supply chain is constantly changing and the buyers don't have any transparency. It makes it really difficult to set up a stable production flow when you’re buying at wholesale, and especially retail level.
Keep in mind that if you’re going to purchase direct from those kind of seller, it’s almost like buying on the spot market. I'm not saying that is good or bad, it just requires a special strategy.
Buying from China at Wholesale Level: A strategy that works
I know a lot of small business people in China who use the following strategy. A few come from North America and Europe, but most are from Africa, the Middle East, and South/ Latin America. They fly to China, come to these wholesale markets, and they buy 1,000 sets of jeans and 100 set of headphones... whatever it is that they’re into. And they make a decent living doing it because they are careful.
The reason it works for them, especially in these marketplaces like Yiwu up in Zhejiang, is that they realize that there’s no aftersales service, there’s no significant guarantee if things fall apart, so they go in there, aware of the dangers, and they open up each part, they do the QC on the spot.
Sometimes I’ve seen these guys going in to buy 1,000 sets of jeans of different size. They actually look at each one, one by one, checking it as "good" vs "no good" and then they buy the good ones, put it in the van, go to the airport, put it on a plane, and ship it to wherever they’re from.
So, it is possible to make money at the wholesale and retail level in China, but realize that there’s a lot of danger in terms of quality control and variation in the supply chain from order to order. Good luck buying 1,000 sets of jeans, getting them back to your own country, seeing that you made a mistake on the color and asking the wholesaler to replace them for you. It just doesn’t happen. You’re really on your own.
Bottom line: Buying from China, in person, at the wholesale level
Buying at the retail and wholesale level is best left to small buyers who are willing to get their hand's dirty and do a lot of product inspection.
What is even more dangerous than buying from the wholesale market in Yiwu? Buying online from the wholesale market in Yiwu!
It’s even more dangerous when you’re buying online, using terms like "e-sourcing" or "e-buyer" where you’re purchasing from a wholesaler or retailer via their online store without meeting them in person.
IMHO, I think you’ll be crazy not to do some due diligence to make sure they have good reputation, structure your payments so that you pay them after the product has been at least inspected or ideally delivered to you. It’s very rare that you’ll find an online wholesaler or an online retailer that would sell you something, and you pay them after it’s delivered. The way to protect yourself is to give a small deposit (that you can afford to lose) and then have your team or a 3rd party come inspect the goods before it ships out.
Truth about Brokers & Trading Companies in China
The other type of seller that I want to talk about is the broker, also known as trading companies, import export agent, even buying or purchasing or sourcing agent.
But for the sake of the article today, let's just lump them all under the term "middlemen".
If you haven’t read my previous post about middlemen, you may click the articles for more information on How do you know if a supplier is a trading company?, Why should you assume that all potential suppliers are middlemen? and, Factory ownership papers reduce the middlemen risk and fear!
In the next post in this series, we’re going to talk about the good, the bad, and the ugly of using agents and middlemen. But before i put the bad mouth on middlemen, let's just keep this in mind- often going factory direct can be very complex:
- There’s language issue
- Do you have the experience in setting up systems?
- Do you really understand the engineering, the specification?
I’m not saying that all trading companies and brokers and wholesalers are bad, because sometimes they can save the day by overcoming the above challenges. The good sourcing agents can take over the project, handle the project management and get stuff shipped out on time. Along the way they make a small commission for their support.
But don't get me started on the brokers and middlemen who simply put you in touch with a factory and expect a fat commission for basically doing next to nothing!
ABL Blog: Sr. Editor and Primary Content Creator: Michael J. Bellamy
Originally from Upstate New York, Mike moved to Asia in 1993 and is a China business advisor to both Fortune 500 companies and small businesses. Recognized as an expert on doing business in China, he has been interviewed by WSJ, CNBC, FT & Bloomberg.
A featured presenter on China issues at seminars, trade shows and corporate events across the globe.
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