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China Sourcing, Assembly and Packaging

How to partner with a factory

I am looking for products that I can import to America but not sure what is a good fit and how to partner with the factory.

There are so many products made in China that may be of interest to your market’s buyers, but I think the first important step should be for you to decide the exact products you feel would sell well via your network. If you start asking random suppliers if they would like to be represented by you in your home country, you will probably get a lot of interest, but only some of the products will be a good fit. So do things the other way around, first pick your target product, THEN contact suppliers of that specific product and that product only. Trade shows are an excellent way to meet potential factories of products you would like to import/represent, but you can also use www.GlobalSources.com to generate a list of targets and begin to approach them. You could even focus on suppliers with product selling to your home market, in theory they should have a leg up when it comes to being certified or tailor made for your market. Once you have a list of reputable companies via online search, then you can develop a template letter to reach out to a group of factories to gauge their interest in having you represent them.

Now some words of caution if the supplier wants you to represent their product rather than just buy and resell under your name.

I don’t have enough fingers to count the number of times in past few years that I have heard of the sales partner doing the heavy lifting to open up a new market, only for the factory to cut that person out of the loop once the market has been opened. So, here are some tools to protect yourself:

1. Set up an exclusivity arrangement with the supplier. Have wording that protects against gray market imports and also covers anything that factory or its subsidiaries produce. For example, if you get exclusivity on only a brand, the supplier can always make a new brand on the same product and cut you out, so be sure to have true protection in your exclusivity arrangement.

It’s nice to have an exclusivity agreement in place, but the protection under a document alone is far from sufficient. To further protect your interests I suggest the following:

2. Find a supplier you feel comfortable with. If you sense they are not trustworthy during your initial discussions, then move on to another supplier. Review carefully how they have done marketing in other nations. For example, if they have a history of opening new markets via outside commissioned sales partners at first, but later set up their own sales offices once business grows. That should be a red flag, unless the original sales partners were treated fairly in the process.

3. Do your due diligence. Get some references. Speak to their sales partners in other countries to get a feel for what it is like to work with this factory.

4. Rather than being a sales partner working on a commission, consider being the exclusive distributor in your country. A distributor takes title to the goods, marks up as they see fit, and most importantly controls the contact with the buyers. An effective distributor is much harder for the supplier to remove from the supply chain than a simple agent. The down side is you have some finance and product liability risks when you are the distributor, but often the mark ups are higher, so the reward may be worth the risk. There are pros and cons, so my point is not to say distributor is always better than agent relationship, but you should certainly explore your options.

5. Consider being the brand owner. Even if you are the sales agent, you can work with the factory to develop a local brand for your market. If you own that brand as a trademark and the end buyers value the brand, then should the factory try to cut you out of the mix at a later point

a) They can’t do it using the original brand. So you have a better chance of retaining your buyers’ loyalty.

b) If you own the brand, you can move production to another factory if needed. So you, rather than the factory, are in the driver’s seat.

6. Have a plan in place to keep an eye on back door shipments from your supplier. For example, if you set up exclusivity for your market and order 10,000 units. Perhaps the factory makes 20,000 units and sells the difference to a China based broker, who then sells to an international broker who then imports the product into your market. The factory can claim they are respecting your market exclusivity by not selling directly to your market, yet your market is being cannibalized none the less. A good exclusivity arrangement should make it clear, that such a scenario is not acceptable, but like everything else in China, you need to verify that the agreement is being respected.

A) One way to verify is to visit the factory on a regular basis to keep an eye on what product is shipping where. Hire an agent to represent you if you don’t get to China often.

B) Another way is to try to be the big customer of a smaller factory. If you are the lifeblood of a factory, they are less likely to try to cut you out. if you are a minnow and they have whales for customers, you won’t get respected.

To summarize, I highly suggest you first focus on picking your specific product. Second, start looking for suppliers you feel are honest and with a good reputation. Third, even if they appear honest, you still need to get a good contract in place. Finally, always be diligent and keep a close eye on what is happening. Pray for the best, plan for the worst!

If you found the above comments of value, you may enjoy reading the blogs and e-magazine of the China Sourcing Information Center at www.ChinaSourcingInfo.org

Best wishes on your China sourcing program!




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