Saturday, July 20, 2013

Alibaba Offline - Yiwu International Trade City (义乌国际商贸城)

Many of you have seem me criticize Alibaba - while a good source for starters, definitely not a dependable or long term channel for serious sourcing strategies.  Today, I'd like to introduce a variant of Alibaba.com.  Unlike its cyber counterpart, this is a real place.  A destination in China that you can physically visit.  A city inside China that any serious sourcing strategist would surely have to know about.

Yiwu is a small city located in the central region of the Zhejian province.  It's about 342 KM (213 miles) south of Shanghai; a two plus hour ride via high-speed train.  The city was founded 222 B.C.  It had traditionally been a city for merchants since ancient times.

There are no historical remanents in Yiwu; there are no sky scrappers there either.  In its current form, it is a vast expanse of typical Chinese buildings.  Despite of its rural appearance, it is one of the richest cities in China.  Average household income and concentration of luxury cars both ranked the highest in China.  Yiwu is one of those unofficial special economic zones within China that makes tax evation a household activity.  For some odd reason, the central government is turning a blind eye to this well-know activity in Yiwu.

Native Chinese merchants have a very high regard for Yiwu; this is "the" destination for small Chinese merchants to buy their goods from.  It's notoriety is bigger than just within China - it is certified by both UN and World Bank as the biggest wholesale marketplace of gifts and crafts in the world.    

So, if you haven't heard of Yiwu, China, consider yourself schooled.  But don't feel too bad, being a Chinese-American, I have not heard of Yiwu until my second year doing business in China.

Yiwu has also become a popular destination for foreign buyers.  Unfortunately, for all the wrong reasons.

Most foreign buyers, when they land in China, are told that Yiwu is like an off-line version of alibaba.com.  For a handful of products, yes, it might be.  But it is really not made for foreign buyers.  Yiwu is a B2B wholesale market while most foreign buyers are looking for factories.  90% of the merchants occupying the Yiwu International Trade City megaplex are wholesalers and trading companies.  The 10% who are actual manufacturers are very small-scaled, garage type operations.  Of the 90% wholesalers, more than half are freelancers.  This means that these freelancers are not really wholesalers.  They just have enough merchandise to decorate their storefronts; they don't actually own any inventory. 


My trip to Yiwu took place in 2006.  Arriving at the main attraction of Yiwu International Trade City megaplex before most of the sellers started their day.  If you ever go there, the sight of the megaplex itself may just be worth the trip.  It is huge; it is made up of five four-story buildings.  Traveling from building 1 to 5, on a single floor, walking on a very fast pace, took me a good two plus hours.  That is, without stopping to see all the different merchandise on display.  By noon, hundreds of buses start to fill the even-bigger parking lot.  The buses are not carrying your average tourists but small merchants from all over China with cash ready to buy.  They are making their annual or semi-annual pilgrimage to Yiwu to replenish their stock. In essence, in some ways, it is like a glorified B2B flea market.

Wholesalers in Yiwu International Trade City megaplex are also one of a kind.  They are not there to exhibit, they don't have samples to give, no price list, they are there to sell.  So, if you are not coming with cash and orders, consider yourself not welcomed.  At least, this is how I was forewarned and then physically experienced.  At the end, it is a cash-and-carry wholesale market.

Storefronts in this megaplex are mostly tiny; many no bigger than a 10x10 tradeshow booth; tens of thousands of such storefronts are packed into the megaplex.  In some ways, the collective resembles a beehive.  Many storefronts will carry the same products, with almost all of them claim to be the real and original manufacturer of the product but none is telling the truth.  Don't forget, most of these sellers don't have real inventory, they will get the products from one of their real suppliers when they have an order in hand.  These stores are there to wheel-and-deal.  If you have an order ready to place and cash ready to pay, you'd be fought over like a seal in a shark tank.  Otherwise, you'd be lucky if anybody would spare you a second look.

We have had a previous experience contracting "the" biggest plastic manufacturer in Yiwu to produce an order.  While the pricing was competitive, not the lowest, the quality is extremely lacking.  First of all, factories in the Yiwu area are home and garage based operations.  These factories are not set up to innovate with new manufacturing techniques, rather, they are there to produce the cheapest goods possible with the cheapest methods.  Since their main customer - domestic Chinese retailers, do not care about quality, Yiwu factories are trained to cut corners in order to bring the costs down.  For export orders, this type of manufacturing culture is just not compatible.  And then, there is the overwhelming majority that are not real factories but trading companies.  It is next to impossible for any foreign buyer to tell them apart.  Even if one is taken for a factory tour, they may still not be who they say they are.

In the end, Yiwu is a fiesta for Chinese domestic wholesalers and retailers.  The needs of foreign buyers will not be served properly.  While sites like Alibaba.com is populated with scammers, at least, they specialize in scamming foreign buyers.  Every once in a while, someone will get lucky and gets hooked up with a real factory with quality work and service.  




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