Friday, May 10, 2013

Alibaba and the Forty Thieves - 11 Recommendations about Buying Directly from China

This popular childhood fable is no longer imaginary.

The mention of "alibaba.com" makes most Americans think it's the primary gateway factory portal.  To buy anything direct, alibaba.com is the one destination.

But if you work in China, alibaba.com is probably the last destination you'll ever visit.  Sure, there are still good information on the site, but at the end of the day, alibaba.com is made for foreigners.  There are more English search results than alibaba.com Chinese version.  That's got to tell you something.

The truth about alibaba.com is less than pretty.  Having great insights into how the company works from a Chinese perspective, I personally have to give it kudos for coming up with such a great name.  And the funny thing is, despite the metaphor, buyers line-up to buy from the site...  What's more funny is that the real Ali Baba is not even a Chinese...

There are scandals after scandals, scams after scams, reported in the domestic Chinese media about unscrupulous companies doing business on alibaba.com.  You can get some reports on this in U.S. media; however, this is one of those well-kept secrets that the Chinese are hiding from the West.

For example, alibaba.com has started to "certify" the factories on its site a couple of years ago.  But the truth of the matter is that whatever certification or Gold Supplier status can all be obtained if you pay the right amount.  Heck, my own China company had been approached by alibaba.com to buy these supposedly elevated standings.  So, next time when you see these on alibaba.com or similar sites, don't take too much stock in it - they are really meaningless.

The entire alibaba.com system has been developed to make it easy for foreign buyers to get stuff from China; it is supposed to be a neutral platform.  However, if the sellers are not successful in selling, they would not stay with the site.  So, there is a natural inclination for alibaba.com to see that the sellers succeed in whatever they do.  Unfortunately, this leaves the buyers out in the cold.  You'd think consumer (buyer) is the king, but when enough suppliers do the wrong deeds, all these wrongness suddenly becomes the norm.  The buyers are re-trained not to be too picky since all the suppliers (on alibaba.com) essentially act the same way.

By the same token, there are just as many brokers on alibaba.com masquerading as factories.  While we have developed a few operating procedures to filter out these brokers and trading companies, the average foreign buyers can't tell the difference.  So, next time when you shop direct from China, you may not really be shopping direct...

I have many customers often compare my prices with alibaba.com.  This makes things difficult for me...  Not that I'm afraid of a little competition, it's just that I can't play bait-and-switch like most Chinese factories.  After all, they can hide behind the vast Pacific Ocean when something goes wrong, and I'm here in the States exposing myself to all kinds of law suits.  So, I can't low-ball my customers with the promise of an unheard of price just to play games with them down the road.  Or, can I deliver something that is not to customer's spec and just walk away.

Here is a lively example...  Customer is looking for 16GB USB disks.  Simple enough.  If you go to alibaba.com, you'll see the terrific pricing of $1.50 per piece with a minimum of 100 pcs.  Some are more decent than others by stating $1.50 to $19,95, etc.  But what does $1.50 buy you anyway?  You get the bottom-of-the-line, cheapest "shell" of a USB disk; the actual memory chip is not included in this price...  To me, this is pure laughable...  Who'd buy a 16GB USB disk without the memory chip?  But tons of American buyers are falling for this...  My customer even use this to try to get me yield to the advertised price on alibaba.com.  Stories like this are a dime a dozen.

There are even more horror stories from other customers who have bought from alibaba.com and gotten burned.  Countless.  And this is not just limited to alibaba.com alone, there are many other similar factory portal sites offering similar services as alibaba.com with even worse records.

If you are thinking about venturing into the wild Chinese factory realm by the alibaba.com remote control, here are some tips for you:

1). alibaba.com is not Amazon or eBay.  Don't think that what you are used to here in the States is automatically transferred to alibaba.com.

2). Be very careful with anything that has to be shipped by ocean (higher volume or weight) unless you are a seasoned importer.  Most of the prices quoted are FOB China.  You are responsible to get your own freight forwarder and import the products.  Getting a freight forwarder is not exactly like calling UPS for a pick-up.

3). If something looks too good to be true, it probably is.  This good old adage works in the U.S., and works just as well in China.  Another adage is: You get what you pay for.  That one is also true.  Just keep these in mind.

4). Don't buy what you can't afford to lose.  While I have customers have great success buying directly from China through alibaba.com, I have more customers did not experience the same luck.  It's always one thing or another.  The rule of the thumb is if you are putting up your house to get the money to pay for the product, it's probably not a good idea to do so.  After all, we really don't need you to add into our homeless population.  In other words, don't bet the farm on it.

5). If your sourcing volume justifies for you to do a visit in China, by all means, go.  You'll be surprised to find that many of your alibaba.com contacts would suddenly stop responding once you tell them you'll be visiting them.  This is naturally because they are brokers and really don't have a factory for you to visit.  But do plan ahead, otherwise, the only thing for you to see during your visit will be the Great Wall of China.

6). Keep in mind that alibaba.com is just a platform; it is not a seller of things.  This means that whoever you choose to buy from has nothing to do with alibaba.com itself.  Despite the fact that alibaba.com is a huge company and makes billions of dollar every year, it is not liable to anybody if some of its registered suppliers engage in less-than-favorable acts.  You'll literally be on your own.

7). Don't shop exclusively on alibaba.com alone.  Although the site is set-up so that it makes it easy for you to shop amongst all alibaba.com suppliers, don't get caught in the scheme.  Get price quotes from a wide variety of sources.  Compare prices, yes, but also compare what you'll get in return.  Intangibles such as service, quality, value, etc, is an integral part of our lives here in America, don't let it evaporate once you landed on alibaba.com's home page.

8). The term "factory direct" has a totally different meaning when you engage in international trading, such as buying from suppliers on alibaba.com.  In the States, "factory direct" still involves quality, service, and the reputation of the manufacture.  You are supposed to be getting a lower price on the exact same item than retail.  But when you buy overseas, provided that whoever you are talking to is indeed a real factory, the exact same term takes on a totally different meaning.  The only thing you'll get is the lower price.  You won't get the quality, service, reputation, or the same item.

9). This one not only applies to alibaba.com but to anybody who you want to buy directly from in China.  Always ask for samples.  Not just any samples, but samples of the actual item you are looking for.  Nine out of 10 times, they'll tell you it's not available.  And prepared to pay for the international shipping for those who actually have something to show.  With a sample in hand, it'll be easier for you determine if what you are looking for is what they are selling.  However, please still be mindful that a satisfactory sample still does not mean your final product will be of the same quality.  I've had too many experiences where samples looks good, but the end product isn't.  Or, one step forward, a real deal prototype.  I still have experiences where the prototype can be signed off while the end products still come out different.  While there are some bad apples out there who had decided to scam you from day one, most Chinese have a very different fundamental concept of signing off on a contract proof than Americans.  So, if your sourcing need is something that is customized, please be extra careful.

10). Do your best to weed out trading companies and brokers.  The real Chinese factories themselves already have issues with lack of integrity, when you end up dealing with trading companies, your risks go up many folds.  This is easier said than done.  Without having a real Chinese company of your own, it's difficult to find out who's real and who's not.  The best you can do is be vigilant and mindful.  When something smells fishy, work with someone else.  Surely there must be a hundred other suppliers in the same search results...

11). Gambler's mentality.  When you cross the line and decide to engage directly with Chinese factories on your own, like it or not, you are a bonafied gambler.  Since that's been established, you need to take this gambler's mentality to the next level.  Once you paid down a deposit and gets a prototype or proof in return, if you don't see what you like, and the factory just can't seem to meet your specifications, walk away.  Yep, be the real gambler who's got the grits to walk away from a bad round.  If somehow you end up with one of those less-than-reputable factories, the tactic is to get you to accept a less quality item (at less cost to them) since they already have your money (deposit).  Most people would just yield to the factory and accept something less.  Once you give in at this stage, be prepared for a string of other misfortunes ready to happen down the road.  Review #4 above.

Finally, if we should have opportunity to talk business, please don't use alibaba's pricing to bargain with me.  I've been in China long enough to know what's up with alibaba.com.  If all you want to pay for the quality you want is confined to alibaba's world, please go with alibaba.com and take your chances.  If things turn out great, awesome, you win.


Thursday, May 9, 2013

Export Delays in China in May, 2013. Anybody?

For the decade plus years I've been exporting out of China, mind you, I also have my own Chinese company managing the export (with the export license), I've been experiencing a consistent chain of delays on almost all shipments for the early month of May, 2013.

This is annoying...  Not to mention furious customers who has been waiting on the shipment for weeks; now more delay.

At first, I was not happy with our own operations and had criticized my Chinese staff.  The cause of the delay was not due to anything logistics-related.  Month of May is not a peak season.  So, what has been causing all these delays...?  If it's an isolated incident, or heck, even a coincidence, I guess I can live with it.  People make mistakes, oversights.  But things are not so simple...

The explanation from my Chinese staff was that the Chinese government had just implemented a new regulation as of May 1, 2013.  This new law dictates that in order to qualify for export subsidy, proper documentation must be presented to the Customs before the shipment is exported.  Prior to May 1st, such documentation can be sent to the government for claims after export.

One of the most important documentation is the VAT invoice from the manufacturer.  And, for many factories, this is one documentation that they most reluctant to supply on-time.

Side Note: China is in a VAT (Value Added Tax) system, this is something very unfamiliar with Americans.  We have our sales tax, very straight forward.  But like the metrics system, VAT is used by most of the countries in the world.  This system is a bit more complicated than what we are used to.  In essence, by providing these VAT invoices (Chinese: Fa-piao), factories have to pay up to 17% of taxes on them.  This amount is, of course, transferred to us as buyers.  But with the commercial invoice, we can then claim up to 13% in the form of a tax rebate, depending on the type of product being exported.  Every product is different.

Another Side Note:  A lot of my U.S. buyers think we pocket the tax rebate.  This is far from the truth.  Whenever we quote out an order, the price is already discounted for the tax rebate.  In reality, the rebate takes up to six months to be sent to us, that is, if there is no administrative quibbling from the Chinese government. So, the U.S. buyers are really enjoying the benefit of not having to pay ahead and wait six months for the rebate portion.  We are actually acting as a bank here...

Back to the topic at hand.  Most of China's factories are not used to provide VAT invoices on the spot.  Usually, they drag their feet for as long as possible.  They would even sometimes try to substitute the VAT invoices under the name of another company (or companies) they'd registered.  That was before; it had never been a pleasant experience.  Now, the new law requires the VAT invoices be presented before an export is allowed, this creates all kinds of chaos in trying to make the factories pony-up the needed invoices.

As one would expect, something that used to take up to a month to get is now condensed to a few days...  Making our own internal operational changes is not hard, but trying to get these factories to change their habit is very difficult.  Thankfully, it is, after all, an official government law, and the factories have no choice but to comply albeit reluctantly.

So, if you are also exporting from China and have been experiencing delays in the month of May, this is most likely the cause.  It will get better over time as everybody in the supply chain change their routines and rhythm.

But...  Why?  Why did the Chinese government made this change?

Unlike our own government and how new laws are passed, which the public is always made aware of the process and even given transitional periods if implemented, China has always introduced new laws literally on-the-spot.  While I have no doubt that there had been as much thinking and discussion that go into making the law behind the scenes, it's just the way it is implemented that really gets to me.  In China, things can change unexpectedly overnight.

So, why the new law?  I came across an article in Reuters yesterday that happened to explain everything: "China opens new front in war as yuan speculation distorts export data".  By the way, this explanation offered on Reuters is basically unknown to most of the Chinese population.  They've been trained not to question the government's leadership and decisions.  So if you ask China what caused the delay, they'd tell you becaus of the delay in getting the proper document for export, but they won't be able to tell you why there is a change in government policy.  For that, you'll have to read the linked article (above) in Reuters.


Tuesday, May 7, 2013

Boot Camp for a Retail Mall

Retail store workers of a major mall in the city of Chongqing in China was put through a training session that was aimed toward better customer service via public humility.  

At least it wasn't all just an employee-only event, you can see two management-level personnel taking part in this exercise at the head of the line.

Police later arrived to try to dispurse both the crowd and the store clerks.  But by then, the training session was over.  It is still unclear if the chaos was indeed a legitimate training session or a publicity stunt to get notoriety.

Aren't you glad you don't work in China...?






Monday, May 6, 2013

Using your own freight forwarder...? Why that may not work out as you'd expected...

Following is a reply letter to a customer who's entertaining the possibility of doing the importing on his own.

Due to the relatively longer turn-around time involved in overseas sourcing, he's planning to fly in a portion of the products in order to meet his own deadlines while leaving the majority to ocean freight.  He's solicited quotes from freight forwarders to bring in the products from China.  While it is technically feasible, it is not our common practice to do so.

Customer politely asked us to use a freight forwarder he's never met, the lowest price he'd received from the Internet searches, for the pending order, and all future orders for other customers...



Thank you for the referral.  We’ve been working with our select five freight forwarders for over 10 years.  We used to shop around for the best price, but logistics really doesn’t work that way.



You are welcome to use someone else for your air shipments; however, like I said previously, we only do CIF or DDP on the products.  So, your ocean will be stuck with us.  That is, unless you are going to fly everything over.

The quote you received from this freight forwarder includes both air and ocean shipping.  However, in the logistics world, you'd usually get better price and service from specialized freight companies who specialize in either of the transportation mode.



Our prices to you, for both ocean and air, is a price based on the future cost of shipping.  When you shop around, you get a quote if you were to ship within the next few days.  In our business, we need a crystal ball to gaze into the future one to two months and come up with a shipping charge at that time.  So, whatever you get quoted now by others doesn’t really mean what you’ll be paying when the product is ready to ship, especially air freight where fluctuation is almost on a weekly, if not daily basis. 



Please do keep in mind, if you should decide to use your own air freight, once we hand over the product in China to your freight forwarder, we will no longer be involved for that shipment.  You’ll need to work everything out with your freight forwarder on your own that may include all the paperwork and customs issues. 



I also want to warn you about using your own freight company.  Certain product issues may involve shipping.  When such an issue arises, it’ll be very difficult, and time-consuming, to decipher what exactly went wrong and who’s the responsible party.  When that happens, you, as the customer, will usually end up to suffer the most since nothing will get fixed until the responsibility is fully assigned.



There are always hidden charges and many unexpected events that’ll take place.  For example, your other quote email had a fine print that said something about customs exam.  These do happen.  It happens for us, but definitely less common than for you as an occasional importer.  If you get selected for inspection, there’ll be additional costs and time, not to mention tons of other hassles that you may possibly have to handle on your own.

Another hidden charge that wasn't clearly specified in the quote is the need for an import "bond."  For this order, you'd be better off paying an one-time annual fee of $450+.  However, on his quote, he only stated "$5/1000 of Total Inv."  Do you really see that you'll be paying more than $500 on this item alone? 

Furthermore, he specified a MPF charge of: "$0.003464%."  Do you really understand what it means...?  This is obviously stated erroneously since MPF is 0.3464%.  But for an average unsuspecting customer, there is no reason you'll see the finer details.

Please also make sure your quote reflects the exact departure and arrival ports.  I only see "China" marked on the quote, but which port in China makes a difference in freight charge.  The freight forwarder you've found obviously did not make that distinction, this means you are really just getting a rough number, not something you can readily use.

The laundry list of fees found on the quote you shared with me, when all added up, is just about as much as our fees.  The biggest difference is that we did not list all the items that goes into importation since this is part of our services, and that we believe our customers shouldn't be bothered with it.

In importation, you can't just focus in on the cost of ocean freight as the singular cost you'll pay.  Our charges to you is all-inclusive -  DDP (delivered duty paid) to your door.  You do not have to lift a finger or be bothered by customs and paperwork, everything is taken care of by our expert staff.



We insist on shipping on our own instead of letting customer handle it is because of all the issues pointed out above.  Amongst our customers are many very experienced importers.  For them, like for us, importing is just another daily routine.  However, even under those circumstances, they still gladly give up the importing duties to us.  There is something to be said about that.