In just over a decade, sourcing from China has become a fundamental component of the business model of global companies. Not a trend, sourcing is now an indispensable necessity. Still, smaller and medium-sized companies are only now discovering China as a potential sourcing destination. In Latin America specifically, sourcing is an almost obligatory business conversation that, unfortunately, coexists with a lack of information and focus necessary to undertake a successful project. One example of this I commonly hear in Mexico: import Chinese-manufactured mobile phones and develop a proprietary brand.
What is the information necessary to appropriately focus a project like this? Businessmen need to take into account that building a brand requires a significant investment from both the brand-holder and the manufacturer. The manufacturer will need to develop its capabilities to produce proprietary models. At the bare minimum, the manufacturer will have to buy molds and parts, as well as allocate production to assemble said phone. The brand-holder, before importing the phones at all, has to obtain registration and certification(s) from the competent authorities. Beyond these fixed project costs, the brand-holder will have to calculate the variable cost breakeven point: how many mobiles should be sold to reach profitability?
Perhaps mobile phone brand development isn’t a project for everyone, (certainly a big reason why only big multinational dare to do this) however, China’s manufacturing base allows ample flexibility in establishing a sourcing project’s focus. Do you want to source machinery, raw materials, parts, or finished goods? Can your business model withstand long-distance transportation? Are there other countries where you can purchase the same products?
Even more, flexibility can be maintained paying attention to potential obstacles of the project:
- Who will lead the project? Sourcing in China requires particular knowledge-building, it’s important to assign one person of your team, preferably specialized in trade and in your core business, to implement the project. He or she should also be up to date on the industry and make frequent trips to China to find suppliers, attend trade shows, and establish new business opportunities.
- Who will implement the project’s operation? Due to China’s boom in sourcing, there are many companies that offer complete packages, including supplier search, negotiation, purchasing, logistics, and customs clearance.
- How vulnerable is the supply chain? For some products such as automotive parts, your supplier will be the end of a long chain of intermediary suppliers. If one of the suppliers falls behind, your delivery time might be vulnerable.
- What about import taxes and local regulations? Due to restrictions that have been imposed on Chinese imports in many countries, sometimes taxes and local regulations play a key role while choosing the products you plan to purchase in China. Some products should be half-assembled to receive some tax benefits, for example motorbikes and textile industry imports.
Identifying and answering the above questions before you start sourcing from China is essential. These questions are just a few of many that will need to be discovered and answered to keep your project moving forward (remember you lose precious time and money with every pause in your project). While a bit daunting, just know answers to your questions are there for you. Talk to fellow buyers importing similar products. Rules, regulations, and other pertinent information are there for you on the internet. The important thing is to take the time to be as prepared as possible… and still have the understanding that DESPITE your preparations, there will be problems.
We at China Latin Diaries wish you a successful sourcing experience in China!
Susana Muñoz China Latin Diaries (www.chinalatindiaries.com)