What A New Buyer On A Small Budget Should Know BEFORE Buying From China [Podcast]In This Episode…

This time our CEO, Renaud Anjoran, is joined by Rico Ngoma, CEO of Source Find Asia, for a discussion about how entrepreneurs and SMEs who are working with a low budget should get started with manufacturing in China.

They both share real examples and tips about what’s most important, how to lower product development costs, sourcing and vetting suppliers, key terms to agree with them, and much, much more!

 

Just hit the play button to start listening..!

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🎧 Rico Ngoma | What A New Buyer On A Small Budget Should Know Before Buying From China 🎧

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Go even deeper into getting started with manufacturing by joining the FREE SFA digital summit!

Rico has recently launched the SFA digital summit, a free manufacturing program for entrepreneurs and businesses on a low budget who want to start manufacturing. So if this episode was of interest you can go into far more detail by registering for the summit as there are 16+ expert speakers on a variety of sourcing, manufacturing, and logistics topics.

Why join?

If you’re building a 6 to 7-figure business that wants to focus on revenue growth or a one or 2-man sourcing team that wants to learn how pros do it and expand your network, the summit will give you expert guidance.

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Episode transcript

Hello everybody this is your host today and welcome to another episode of the china manufacturing decoded podcast today my guest is Rico Ngoma. I’ve known him for probably six or seven years. Rico maybe you can introduce yourself and what you do?

Hey thanks for having me on the show, so I’m the CEO of Source Find Asia we are a manufacturing consulting company based in Guangzhou and we also have some installations in other parts of China like most of Southern China, but also in Northern China as well and yeah we specialize in basically finding high-quality suppliers which means we don’t necessarily have a specific product that we always work with, one of our main clients is in a CrossFit space so exercise equipment and CrossFit equipment, but we’ve done injection molding, watches, electronics, we’ve touched on a lot of different products.

Yeah okay, and we’re speaking today actually because you and your team put together a digital summit, right, ‘Source Find Asia digital summit’ that maybe you can tell us a little bit about it, who is in the intended audience and where they can find it?

Yeah, so it’s SFAdigitalsummit.com so the idea was, I mean I wanted to launch a manufacturing course or actually one of my friends told me I shouldn’t call it a course, I wanted to launch a manufacturing program for a while like it’s been a few years I’ve been thinking about it just because there’s a lot of e-commerce programs around Amazon and selling on e-commerce platforms, but there aren’t too many people that are actually manufacturing experts or that work in the manufacturing space specifically that had programs, so I decided to put that together especially during the last year and a half. With covid the normal side of the business slowed down a little bit so I had more time to think about this and then also, in general, I understood from a lot of the startups and first-time entrepreneurs and small businesses that they couldn’t afford to pay for our consultation services so it made more sense to me to sort of put together a manufacturing program and then how do I launch that program was the next question. So originally I thought I was going to do a webinar and I interviewed somebody that gave me the idea of putting together a digital summit and basically bringing together a lot of my network and having everybody do presentations on their areas and that’s how the concept came about. So yeah I mean the summit itself is free so sfadigitalsmit.com is where you go to sign up for it you just have to submit your name and email address and it’s free. I think we have a little bit over 16 different present presenters covering all topics from how do you build an audience, how you do market research validation, all the way up to how you actually sell the product with the manufacturing and QC and design for manufacturing which you did a presentation on in between!

Actually, I looked at the list of topics on the web page and actually what I suggest for today is to go through the topics that are related to manufacturing like from vetting the supplier all the way to shipping and just to cover them from the angle of: ‘I’m setting up a new company somewhere, it could be in Europe, North America, in other places. I’m going to buy some products from an Asian supplier. I already know what kind of products so we’re gonna skip all the looking for the right product and things like that. I already have an idea what market, so we’re gonna skip all the market research topics and things like that, but I want to get the manufacturing underway, I want to get the products in my hand, but I want to do everything out of this on a small budget.’
This is because, as you said, the target audience is people who may not want or may not be able to pay for consulting fees, so I want to do all of this on a relatively low budget.
Okay so let’s go through the topics and the first one would be: If you want to develop a new product how can you do that on a small budget right?
A lot of people in this case usually start with an existing product off the shelf right just because this way they can get started selling it to a certain market, get to know that market, get to know how to distribute and without having to do any investment in design, does that make sense to you?

I mean typically when clients come to me who want to create an original design and they don’t have a big enough budget for it I typically would tell them not to do it just because it’s hard to really calculate the expenses before you actually start working on the project. If it’s a new product you’re dealing with a lot of different variables with suppliers and molds and things like this where you might have to make multiple prototypes. The prototypes could be expensive like there are so many things that you just don’t know, so it’s a little bit better to if you don’t have the budget for it or you’re working on a very tight budget it’s a little bit better to start off with pre-existing products, maybe with some small changes to the product or try to go into crowdfunding, but then again crowdfunding is not it’s not what it used to be right, so you have to be aware that you’re going to spend a lot of money before you actually even launch your product.

Oh yeah the prototype of your unique product usually or at least something that looks like a prototype on Indiegogo you have to have a prototype and then you have to pay to get a nice campaign so maybe you’re a digital marketing expert and you can do a lot of the photo shooting maybe even some of the videos and things like that yourself, but most people are not, in that case maybe 10 to 20,000 just to get the nice campaign all set up right?

It’s interesting because it’s like I was talking to my business partner Mike Sherhorn and his nickname is ‘China Mike’ and he had a couple of crowdfunding campaigns back in the day, I would say 2011-ish when it was really early, and these were six-figure campaigns and in that time period I mean they would spend a couple of thousand dollars and then have a six-figure campaign.

Wow!

But now I was talking to other people that have gone through crowdfunding campaigns in recent times and they’re spending high five figures to barely make six figures right? You’re spending seventy thousand dollars to make 90 thousand or eighty thousand to make a hundred thousand, and then you have your manufacturing costs and the reason is just that it’s a much more competitive market than it used to be. You have way more campaigns being launched at the same time, we have way more expenses in terms of the marketing the videos the graphics the website so that’s all that kind of stuff and then even again the manufacturing costs like you mentioned.

Yeah, the platforms are more strict than they were before because people were scamming like they would launch a product and not actually have the product, so now platforms like Kickstarter require you to have your prototype already produced and that takes time and expenses before you launch right?

Yes, exactly and Facebook ads and similar ads are more expensive than they used to be just because again it’s more competitive so the bar is much higher so if you want to do it for a lot of visibility that might make sense, but you might not actually make any margin on it.

Yeah so to get back to that, I mentioned that because some people want to start buying something from let’s say China and at the same time you want to develop the new product and everything and if you have a low budget that’s too many unknowns. Usually what makes sense is some people call it a stair-step approach where you start to pick something that you think you can sell to a certain market and that you can reach rather inexpensively and you basically distribute that product. Now maybe it might have your logo, maybe packaging with your own artwork, your own color, but very minor differences, and then as you get to know your market and how to distribute to them, and as you get to also know the Chinese manufacturer you might want to customize it further, you might even want to redevelop a totally new product from scratch that would be yours rather than you distributing that manufacturer’s product, but it’s better to go at it step by step if you’re really on a budget. First, learn the basics of how to get products and move them to your market and sell it to your market.

Okay, so supplier vetting. Good supplier, good results usually. Bad supplier, bad results pretty much all the time. Would you agree with that?

Yeah for sure, I mean it’s just so funny because like as a consultant I have this conversation with clients all the time and obviously the biggest concern with clients is always price and quality. They always go hand-in-hand and it’s like well I want the best price, but I also want to get the best quality or the highest possible quality at that price, and I’m like it doesn’t work like that. China is not Walmart. If you’re gonna go for the best quality then you have to pay a certain price and that comes from the research and the work that you do in terms of finding a good quality supplier.
In my experience it’s always always been a situation where if we had good conversations with the supplier early on and they were giving us solid responses to the questions that we’re asking, and they were also asking us questions and giving us some advice in terms of the the product whether it’s materials or certain aspects of the design that they say if you can change this then it’s going to be a little bit easier to manufacture, that’s always been a very good sign and even just patience actually, because we’ve had a few situations where our clients were maybe a little bit difficult to deal with and and the factories were very patient and still kind of wanted to go along with the order and was still willing to make another prototype, for example, even though we made one and there’s some small changes that the client wanted to make whereas a lot of other factories would say that change that you want to make is so small that like let’s just place the order and we’ll give you a golden sample and you’ll be able to see the the changes, so yeah I think definitely 100 like if you can find a good supplier, if you have a good relationship with the supplier early on then it bodes well for the for the rest of the order.

Yes so again on the small budget basically what can you do? So you can start from Alibaba, Global Sources if you can’t travel to Asia, but that’s just the starting point, right, so a few of the very common mistakes I see as you mentioned yeah I want the best price so I found like 20 suppliers that make this whatever product that I want to buy and I’m gonna ask them for their best price so what do you think let’s say these 20 guys, let’s say five of them are actually quite good but they get contacted by someone who says oh I want your bottom pricing do you think they are even going to respond because they if they’re good they have their long-term customers they’re busy and they can probably charge a little bit of a premium. Are they going to respond? Usually not. Those who are going to respond probably are not so good and it’s going to be very inviting also to scammers right, so you end up either with a bad supplier or a scammer, so definitely not the way to start usually. Does that make sense?

Yeah for sure, it’s difficult when you’re on a tight budget it’s really really difficult to to find that balance between price and and quality and I completely understand that, but you have to understand that there has to be some level of sacrifice right, like if you want to have a certain price then you might have to sacrifice quality, if you want to have a certain level of quality then you might have to sacrifice price, and then maybe on your first one or two orders you don’t make as much money, but long term it’s going to be more beneficial because okay so you save money on the first order, but then you have a ton of returns right, or you have to now start dealing with a factory like you said who it’s you don’t have a good relationship with or you just have a lot of issues with that supplier, it ultimately ends up costing your business more in in those situations whereas if you pay a little bit more, maybe make less money at the beginning, but once you you have satisfied customers and if you can do larger orders then it works out and it’s a much smoother process.

You’re exactly right sometimes the conclusion is you just pick really the wrong supplier, these guys will never try to improve, these guys are not really trying to understand your quality standard they’re just trying to give you excuses to get your payment this time, get the stuff shipped out and they don’t even think of your next order, they don’t care, so yeah, these are really big red flags.
Apart from that what can a company with a really low budget do? I mean they can look at some of the information on the directories like Alibaba, but being a gold supplier doesn’t go very far it doesn’t matter.

Have you noticed that the Alibaba website has removed a lot of those sort of classifications of gold and things like that for the suppliers like they’ve reduced because they used to have so many different ones they used to have like three or four different what you call it like certificates or whatever for the suppliers I think right now it’s only one or two?

I think what you can do is there’s a lot of resources I mean obviously your podcast, my podcast, on youtube there’s a lot of youtube videos, so I think you need to do your research if you’re on a tight budget.

Of course in another situation, you can come and join our digital summit and the manufacturing program that we have which in our manufacturing program we take you step by step in terms of the supplier research process and how we do it in terms of service manager as a company so I just feel like you can do a lot of research by yourself, there’s a lot of free resources or resources that are relatively inexpensive. I think that’s the first step and then I mean there are also communities like we have Facebook groups and forums with people’s questions with people that have been making products for years, I think you can jump into those places and ask questions.

Yeah, true good points. Yes actually on this podcast we did like 10 episodes about China vetting, we really broke it down so there’s a lot of things that they can learn and to do it themselves that’s for sure.

Now, let’s say okay you found a supplier that seems to be okay or maybe one, two, three that seem to be okay, you’re gonna move ahead with one and you need to set all the basic terms actually as early as possible so that there’s much a higher likelihood that they accept what you’re going to tell them. So usually the payment terms if you’re a small buyer that’s going to be relatively standard, and if you can negotiate to pay the remainder after shipment that’s a plus obviously, but if you’re a small customer on the first order that might be a little bit difficult. You could put certain things black and white maybe you used to be a lawyer who knows, again there’s a lot of resources where you can find one of the important terms to include and get them to sign. It’s always a plus anyway to clarify the expectations: what happens if they are two weeks late, what happens if they ship a batch to you and this has defective goods, what happens if they leak your confidential information? Certain things like this need to be very very clear. You might not want to go and sue them, though of course making the contract enforceable is always a plus, at least you can call them out on that, right? I guess you’ve done that a number of times, right? It’s always better when things are black and white from the beginning like there is going to be inspections during production, after production, like you have to let our inspectors come in. Sometimes some manufacturers actually try to push back on that which is crazy, but they try.

I always tell my clients when it comes to the contracts the biggest thing that our suppliers usually push back on is the quality control standards right, like in terms of the aspect of what is a critical, minor, major defect. We talked about the AQL level standards and that’s always the conversation that takes the longest in the contract. It’s not about price, it’s not about production time or anything like that, it’s always what is your expectation of quality and what is my expectation of quality, but yeah you’re right like we’ve had to enforce a few times and the fact that it is written in the contracts and also typically it’s in Chinese and English. So one example was like one client of ours was making some swimming costumes and it was not necessarily an original design in terms of the costume but the print on it was original that she designed and after we had done the first order I guess she was browsing the supplier’s website and she came across her design and it was ready to purchase on the site. I mean we had a non-disclosure agreement with the supplier and also our contract as well said they couldn’t sell the product to other people, so we just contacted them and said ‘hey see this clause and this clause’ and they took it down, so it’s good. I mean, of course, you could have other suppliers that might not care but that’s also where it goes back to our conversation about finding good suppliers right.

Yeah so the suppliers that care maybe a little bit about long-term stuff I mean they’ll still maybe try something that is outside of what the working relationship was supposed to be, but when you point it out and you have an agreement and something to follow that’s written down a lot of times most of the time they’ll actually take it down or they’ll follow and they know it’s a problem because in that specific case with the special custom print and the costume some factories would just say ‘oh, but you’re based in the UK usually our other customers, in that case, would tell us there’s no problem to sell it to Australia.’

Yeah, yeah, I’ve heard that right, so of course, that’s the problem with those situations, but yeah it’s good to have the grievance in place even though you might not necessarily be pursuing it aggressively in the court.

Yeah absolutely and you say quality control is often something that they try to push back on, especially when it’s specific so something that a lot of people buy for the first time and they really don’t understand that it’s on them to be specific it’s on them to design the process of the approval so, for example, the costume how do you make sure that you get exactly the right material and accessories and then when it’s dyed it’s exactly the right color that you want within a very tight tolerance and the sizes are okay and all these kind of things?
So you could just tell your supplier hey yeah just oh you already know the sizes in North America right, so we just want like six-year-old, eight-year-old, ten-year-old, and then you don’t try to check it and approve it before production. I mean that that is a recipe for disaster, because then if everything is one or two sizes too small what can you say? You cannot say anything actually because you never approved any samples for sizes or if there are so many issues with that that can pop up obviously but you need to design your approval process because even if we say like relatively off-the-shelf product like that costume, as you say, maybe they already had the pattern and they already knew what workmanship it would be, but the colors and the print and everything is a bit different, maybe the sizes need to be reapproved?

So very often there are approvals for packaging, typically you need to approve things and keep that as a standard and you need to think as you mentioned of the potential defects. What is going to be a critical defect? Like if I find one of these the whole shipment is going to be blocked and you’re going to have to recheck 100% of the products and you’re going to have to pay for the re-inspection. So when they start to see these sort of things in a very specific way documented that they have to approve that’s when they start to think ‘hey this is for real, these guys might just block a shipment and be very painful’ so that’s when they start to discuss and actually that discussion is very very important and it should take place, because if you send them something very specific and they say okay okay okay yeah yeah okay and send it back to you it might be the salesperson who just wants her commission and wants to get things underway and they don’t care. They say okay it’s fine and the people in production quality haven’t even seen it.

The same thing for contracts, too, and that’s a really good point as well in terms of the salesperson, right, because a lot of times you’re talking to the salesperson and the salesperson doesn’t have the same level of expertise as the actual production management or the engineers that would maybe understand these issues and the salesperson is just trying to push the order and finish just to get the commission, so that’s something that we always kind of try to mention as well with clients who then work with factories directly or before dealing with a factory and we have some issues we tried to get a second contact maybe try to get the engineer, production manager, or someone like that who has more experience and more decision making power, because yeah a lot of issues have been fixed by just not dealing with the salesperson, right? Sometimes you get lucky and you get a really experienced one who will ask some questions, but yeah if they see you as ‘yeah this customer looks kind of cheap, it’s the first time, the order is not large, whatever’ they give you the junior salesperson with very minimal experience. That’s a risk that happens quite a bit and then nobody’s managing the project, nobody’s really aware of the risks or pointing to the risks and challenges and that’s really an issue, so vetting the supplier getting back to that stage is so important. Making sure that you have the contact of maybe the sales manager or someone with experience that you can communicate with for certain topics it’s really a plus right?

Yeah so definitely I think the big takeaway there would just be like get a second point of contact. If you can deal with somebody who’s a little bit more senior it just makes it much easier.

Oh yeah definitely.
Now, okay, so let’s say you and the supplier agreed on the terms, everything is clear, they know sort of the roadmap to get your payments and to get the shipment and get everything validated. You’re not on-site, so do you just tell them ‘okay yeah here’s the first payment, start production and tell me when it’s finished,’ which a lot of people do, right? Would you just say that and just trust that it’s fine and they would tell me if something goes wrong?

I mean typically what we do is we would first of all want to do an inspection of the facilities before we start the order so even if it was a product that was pre-existing and we looked at the samples and stuff like that we still want to go physically to the supplier, sit down with them face to face, let them know that we’re real, and also just understand what their actual facilities look like and how they operate. Then, as we already talked about quite a bit, a lot of times we end up negotiating the contract with those visits, but yeah beyond that I mean you have to be active in your communication, you have to be asking them for updates, you have to be scheduling inspections. I think if it’s an original product then we typically like to do an inspection during production and then at the end of production, and if it’s a pre-existing product then you maybe schedule the production at the end of production, but besides that even just asking your salesperson or whoever it is that you’re talking to at the factory to go and check what’s going on in production and send you pictures and just get general updates on the production process I think is extremely important. It also is one of those things where, because a lot of clients don’t do that, if you are a more active client then you basically just have more people paying attention to your production, like they will take you a little bit more seriously, because again as I mentioned you have to assume that nobody is managing your order. It’s you don’t have like project managers or things like that. You would think the salesperson does that, but the salesperson is just going to follow up on the payments to get her commission, is just going to respond to your questions, but not be very proactive usually, and she’s going to spend her time waiting for other inquiries from Alibaba or wherever they are advertising and following up as fast as she can to get the next customer and next customer, that’s the reality.

So yeah if you’re far away you can come, but if you have a low budget I mean if you can’t even do an inspection of production don’t buy from Asia I would say. It’s really like something you can’t skip. If you cannot run some kind of background check on the supplier, well there are ways you can gather some information on different directories, you can talk to them you can reduce the risk if you don’t go on site. I mean some people call the salesperson and say okay where are you turn the video on right now okay show me the factory go to the shop floor to see if they are at the factory, but I don’t think they can really have an idea about the quality systems in place and what the processes are and what kind of other products they make and have a look at the other brands maybe that put their production there and things like that, so if you can’t send someone to the factory.

Yeah, it is and I can say it with certainty if you do some kind of factory audit before you work with a supplier this is correlated with better results later on during the product inspections. We’ve run the numbers based on our database of work we did for our clients at Sofeast and there is a strong correlation coming out very clearly, right, so you’re just asking for trouble. Basically, you multiply your risks if you don’t send someone to the factory to see what’s going on, to see if they’re real, to see if they’re really making these kinds of products or if it’s going to be subcontracted or if they’re making some other very different categories of products, right.
Just last week I heard a crazy story about a factory making parts for aerospace and their main activity was actually making washing machines! I mean this is really extreme, really crazy, but you sometimes get into this kind of situation and you’re like what the heck I mean is this gonna be made here? But do you even know something about that product line or are you just jumping on every opportunity and you don’t really know what you’re doing?

Yes, and you have to be really careful about which product you select to make as if you’re going to make something that has a lot of technology and you have a tight budget it doesn’t really make sense because technology is going to involve issues happening and things don’t work immediately and multiple multiple prototypes and bringing on technical expertise to figure out why this product isn’t working and things like that and certifications also. I mean we had a client recently who was making a bag that had some sort of IoT lock to it and it was one of those situations where there were multiple suppliers. There was a supplier for the bag and the supplier for the lock and the lock itself had multiple issues because it was new and so it was something that we had to work through for quite a while and the client started to feel pressured financially and it just goes to the point that I was saying is like you have to make sure if it’s a technological product or something that is going to be expensive to produce maybe take a second look at different products if you don’t have a good budget for it, right?

Yeah, good point and that also leads us to the next topic about compliance. If you buy anything that is for children, anything in contact with food, anything with electronics, all of these come with their own compliance regulations. I mean you’re gonna have to pay more attention and probably have more of a budget for compliance.

Yeah especially if you pick off the shelf products and you don’t know where the materials come from and everything, then you might have to do a lot of testing and if you are on a small budget that might be a killer right so keep that in mind.
You definitely will have to be aware, that’s the first thing I would say of the compliance requirements in the market where you’re going to sell the product and I see that Fredrik from compliancegate.com is one of the speakers at the summit. They have a neat tool about that, but really you should be aware of what the regulations, directives, etc, are and what exactly does that mean? What do I have to do in terms of labeling even and maybe a declaration of conformity and things like that and what are the risks if some of the materials need a chemical analysis for REACH for example if it’s sold in the EU just to make sure that some of the restricted substances are not in the product. I mean it’s so common, it’s just an example, but compliance might actually be quite expensive if you want no risk.

Yeah, 100%. My first product that we worked with was PVC figurines for children between the age of five to eight, and this is also the product that your company inspected and one of the things that we had to do was, we had to get because it was original design it was the first time making the product, we had to get the paint, the plastic, everything inspected to go to the standards of Canada and the US and it was every single paint color and I think the first product had like three or four different colors, so every single paint, every part, every plastic or every different sort of plastic that was used and I mean it was not cheap! It was not cheap for the client and then also the time constraints of we’re in the middle of production because you have to take the product that’s actual production, not a prototype or sample so that was a big lesson for us as well.

In terms of product compliance, you have to really make sure this is okay and also they have feedback in terms of certain parts of the toy that maybe were a little bit too sharp or things like that and could be broken.

Yeah, even this should be taken into account in the design phase right. If something can be broken into a small part, especially if you don’t that can be swallowed by a small kid and especially if you don’t put very clear labeling that this is for kids of seven or eight year old not for like two years old, then you can run into such big trouble when you put that in the market, so again awareness of compliance standards.

Right there’s one more thing, the packaging is another one of those things where people don’t really think about it so deeply, but you have to make sure that your packaging also follows the regulations because shipping those toys to North America and in the US English was fine, but like in Canada it’s a requirement that it’s French and English on the packaging so these were subtle things that we had to make sure that the suppliers were aware of to make sure that our packaging was compliant with the regulations in the countries that we’re exporting to.

Absolutely and it brings you back to the previous point that we made that it’s your job as the buyer to know what is required and to document it in a very specific way and make sure that the supplier knows and does it all. Don’t count on the supplier to tell you if it’s going to be in Canada it’s got to be also in French.

Yeah I think that’s the other aspect is like you’re the buyer, it’s your product that you’re exporting s you need to know these things and the information is out there if you do enough research.

Yeah correct and then shipping and logistics just to wrap up. A huge mess these days and not going away anytime soon and I guess there are no real tips for a small buyer to go through that mess. I mean just make sure that you specify proper protection for your products that’s something people often forget and apart from that find a freight forwarder or a consultant that can help you get the product shipped out to where you need them to be.

Yeah, I guess in terms of pricing it’s tough, but I think that the normal sort of ideas are the same, getting multiple prices from multiple shipping companies and then being able to compare. I think that’s always good advice but also just not waiting because I remember one situation that happened recently where we gave a client a shipping quote and then they said oh that’s too high, can we do this and that to change it, and then we waited a few weeks and then the prices went up like almost 60%. So it was one of those things where it’s like right now if you can afford the price I would say you probably have to move quickly, but yeah the biggest thing is to try to get multiple quotes.
Think about your packaging dimensions and things like that like if you can. If there’s any way that you can make your packaging smaller then that’s going to help overall with the shipping process, but yeah it’s a tough situation obviously because of covid there’s just fewer shipping options and things are just slower, but people still want their products so it’s more expensive so that’s really nothing that we have control over, but yeah I think that would be small pieces of advice I would give.

 

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