Today I’m happy to have Peter Zapf, the CIO of Global Sources, which is one of the leading B2B marketplaces for connecting buyers and suppliers in Asia.
They’ve been around for 40 years, make around 200 million in revenues, have over 150000 suppliers in their database and work with 95% of the top global retailers.
Today, Peter was gracious enough to come on my podcast to give us an overview of the private labeling landscape and all of the recent trends in importing!
Enjoy the episode.
What You’ll Learn
- How Global Sources compares with other B2B marketplaces like Alibaba
- How does Global Sources vet the companies in their database
- Why a lot of vendors are not on Alibaba
- How to find legit factories and manufacturers
- How to weed out the good vendors from the middlemen
- What is the threat of factories and manufacturers going direct to Amazon?
- The best practices to stay ahead in private labeling
- How to interact with a potential vendor. What are some best practices for initial contact?
- The common no-nos when dealing with Chinese vendors
- What Chinese vendors look for in a customer
Other Resources And Books
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Welcome to the My Wife Quit Her Job Podcast. We will teach you how to create a business that suits your lifestyle, so you can spend more time with your family and focus on doing the things that you love. Here is your host, Steve Chou.
Steve: Welcome to the My Wife Quit Her Job podcast. Today I’m happy to have Peter Zeff the CIO of globalsoruces.com which is one of the leading B to B market places for connecting buyers and suppliers in Asia. Now Global Sources has been around for four years, they make around 200 million revenues, and they’ve got over 150,000 suppliers in their database, and they also work with 95% of the top global retailers all over the world. Now Peter was gracious enough to come on my podcast, to kind of give us an overview of the private labeling landscape and all of the recent trends in importing. And with that welcome to the show Peter, how are you doing today man?
Peter: Oh great, thanks, I appreciate you having me on, it’s just a comment in relation to the top retailers we also have a lot of Amazon private label sellers and eBay private sellers that uses our services as well. So it’s quite a range of buyers that use our services.
Steve: Yeah and just so a quick background on Peter, he was actually nice enough to come on my create a profitable online store office hours, where he actually went and answered a whole bunch of the student questions as well, so I was very appreciative of that. So Peter give us the quick background story about kind of what Global Sources is all about and kind of how it compares with some of the other B to B market places like Alibaba?
Peter: Sure, so Global Sources as you said we’ve been in business for over 40 years. We started with trade magazines, and really our goal was to help bring manufacturers and overseas importers, wholesalers and retailers together, help them find each other. And 40 years ago the best way to do that was with magazines. We’ve converted those magazines to electronic magazines now; they are still popular although not as popular. And they are available at globalsources.com/magazines if you want to download them.
So what we did then is we launched our website because in the late 90s we started saying, hey, wow, the internet is a great way to distribute information about suppliers very quickly to global buyers. The magazines would two to six weeks to distribute by boat, so the near instantaneous distribution on the internet was great. So we launched the website in the late 90s, and then in the early 2000s we launched our trade shows. So that gives the buyers an opportunity to meet suppliers face to face, and also meets some suppliers that don’t market themselves online.
And then in conjunction with that we have a small site called smartchinasourcing.com. And that’s really good for folks that are just getting into importing and learning how to import and want to know things about logistics and payment and quality control and all the others as you deal with importing. Well those are kind of some of the things that we do, and ultimately the goal is to bring overseas buyers and suppliers and nowadays they are primarily in China, the China manufacturers together, so they can do business.
Steve: Are the vendors primarily on the website, are they primarily from Asia, or are they vendors from other countries as well?
Peter: We do have vendors from other countries, but I would say that the majority of them nowadays are from mainland China.
Steve: Okay, and as I was just going through like Global Sources is one of the places that I recommend to the students in my class, but I thought it would be interesting just to kind of hear it from you guys what kind of differentiates Global Sources from some of the other places, like what do you guys that’s just really good?
Peter: Sure, first of all there a lot of good other sites on the internet, and they do a lot of similar things, right? Search for products, search for suppliers and contact them. A couple of other things that we do a little bit differently, the first is because we also run trade shows we try to get all of the exhibitors from the trade shows online as well. Now what’s interesting and a lot of people I don’t think realize this is the suppliers, a lot of them I’ll call them trade shows lovers.
They like participating at trade shows because the people that they meet at a Hong Kong show for example are people that have invested in paying for a plane ticket and spending a few days in Hong Kong. So they tend to be more serious buyers. So those types — some of those suppliers they don’t want to be on some of the more widely used online sites, because then they get a lot of inquiries from I’ll call it less serious suppliers.
So the first thing is because we run the trade shows and we get those suppliers on our website, we have some suppliers that you can’t find in other places and other trade shows. So they also tend to be more likely to be a manufacturer and more likely to have export experience and more likely to be a larger and more sustainable business. So that’s the first thing just all the touch points with the trade shows that we run.
The second is we also have quite a bit of editorial content, and really editorial content in two areas. If you go to the homepage on Global Sources in the left column you’ll see a bunch of product categories. And you can click on one of the product categories and click down to see a lot of the editorial content that we have there, here let me just bring something op here to give you an example.
So in our fashion accessories and footwear for instance, we’ve got an analyst choice section with some new products that have come out. Some flip flops are here, leather handbags, gold statement necklaces. And then some top 20 most popular section for content that is very popular on the site that people may be interested in seeing. And trending section for content that’s most trending in that particular category, this should be fashion accessories and then some…
Steve: It sounds like instead of just a listing of products and vendors you guys kind of have a little bit of value add in that you kind of carry certain things as well, is that accurate?
Peter: That’s exactly right, so it’s accurate and then part editorial content around it just to give the audience a little more information on what’s new. So those are two big things.
Steve: Yeah, I was just going to make a quick comment here that I’ve kind of noticed lately that Alibaba is becoming a kind of saturated full middle man traded companies and actually all the vendors I use for my shop are actually not on Alibaba. I found almost all of our vendors from trade shows, not like the Global Source — not your trade show, but like trade shows like the Canton Fair. I think what you are saying is quite true and I actually asked my vendors at one point why they don’t list on some of these places, why they just focus on the fair, is because they don’t really want to be dealing with some of the smaller guys in the space.
Peter: Yeah, and we’ve had that from the buy side also, some of the buyers will tell us that they visit our site because they don’t want have to read through a lot of the smaller say independent college dorm room sellers that are on some of the other sites. And they find that it’s easier to find manufacturers or larger trading companies that are real [inaudible 00:09:11] in our businesses using our services, both on our site and the trade shows.
Steve: So along those same lines, so how does Global Sources kind of vet the companies in the database?
Peter: Sure and that’s a good question for everybody, we do a couple things. The first thing we do is we do for the verified suppliers that are on our site, we visit those suppliers, so we’ve seen them face to face, we’ve seen their offices. And we also get their business registration, so we ensure that they are a legally registered entity. So that’s the very beginning part of the process.
Then the next stop is as content is uploaded, we also review and we are not perfect so if you see something let us know, but we’ll review for obvious say trademark and intellectual property infringement. So you tend not to find that kind of content on our site and some of the brand owners have commented to us that they like working with us because when there are issues we are very responsive, and they don’t find many issues on our site. And then those processes work pretty well, not perfect work pretty well.
But the real managers at the end of the process, there are always commercial disputes between buyers and suppliers, and sometimes the buyers contact us asking us for help or assistance. And in the vast majority of cases they are commercial disputes; it’s only in a very-very small number of cases that we actually have to go take a supplier down because the supplier did something that was shady.
And I would say it’s around one supplier per year that we have to take down. So to me that’s a pretty good measure of quality that the upfront steps that we take are a result of us having to take a very-very small number of actions on suppliers at the end of the process based on buyer feedback.
Steve: So along those same lines, I get this question a lot from people. When you find a vendor whether it would be Global Sources or Alibaba, do you kind of have to do that extra leg work to make sure that you are not violating or copying other people’s brands? You can never make the assumption that what you are getting is legit, right?
Peter: Well I think there is two things to think about, well maybe three things. The first is, are you looking for something that’s unique, so is it your design or not? A lot of the private label sellers are not doing a lot of design work. So then the second thing is if you are using the supplier’s design, you may want to do a little bit of research to figure out does somebody have a design pattern on it in your country, which is different than trademark. Trademark is mainly the logo that’s on it, so that you can also look up on the databases in the US to see if anybody has that trademark in your product category.
But you do need to do some work to make sure that you are not violating somebody else’s intellectual property if it looks like it’s not a commoditized product. If it’s a commoditized product like picture frames or something like that, there’s not a lot of intellectual property in that, so that’s not as worrisome. But it is something that folks should at least be aware of.
Steve: So finding out whether you are infringing a trademark is relatively simple, but how would you go about finding out whether you are violating a design pattern?
Peter: Yeah that is a lot tougher. My two way I reverse image search on some of the product images and see where else they show up and then try to figure out if some of — and then look up whether some of those are coupon [inaudible 00:12:50] have design patterns. Oh, that one is not totally easy. The other way to do it is to request some changes to the product that will make it more different from what other folks that might be selling. None of these are guarantees; they are all risk management steps.
Steve: Okay and I’ve used a lot of these listing services or market places in the past, and a lot of times you have good vendors and you have kind of middle man, and you have bad vendors. What are some of your word tactics for kind of weeding out the good guys from like the bad guys?
Peter: I hate using the words on good and bad, the supplier is selling to buyers in 200 different countries, and every buyer has different requirements whether they are regulatory and sort of occasional requirements or body requirements. And to me the key is good communication, so the supplier has a clear understanding of what you as a buyer what your requirements are, and especially the quality requirements, because that’s where a lot of the commercial disputes seem to come from.
And to do that one of the practices that you can do is first to get samples and I think everybody is right about that and doing that. The second thing is when you get the samples everything that you don’t like about the samples are put down on what’s going to become your quality control or inspection criteria checklist. And everything that you don’t like about the samples turn into a very objective statement that the third party could look at and assess, hey does this product meet this quality requirement or not. And if you get a few samples from a few factories, you’ll be able to put together a pretty good quality checklist.
Then when you have that checklist done and it’s got to be objective, it can’t be like it looks pretty. Well, pretty is — everybody defines pretty differently. No visible scratches, that’s more objective, the more objective you can make it the better. Then when you have that list of criteria, include it as part of the purchase order, and ask the supplier to sign off on it and say, look it’s part of the purchase order, these are the inspect, these are the quality criteria we want, and we are going to have a third party inspection agent come in and judge against these inspection criteria before the product ships.
So then you’ve told the supplier two things, one these are quality criteria, and two we are going to have somebody check on them before you get your final payment. And that helps also, and then the supplier, the supplier may come back and say; hey these quality requirements are higher than what we can do. And that’s fine, that’s what you wanted to learn at that point in the process, we are going to come back and sign off on it. And then after manufacturing is done, it’s a good idea to then bring in a third party inspector to inspect the goods before they ship.
And again to me I look at that as an investment, you are trying to figure out, hey can this supplier meet my quality requirements? Not just for this shipment, because the shipment may be a smaller trial orders, and you may not make a lot of money on that shipment especially when you add the inspection cost in. But you are learning better whether as the supplier increases their production quantity they can meet your quality requirements, and that’s super valuable. Especially if you don’t want to start getting a lot of bad reviews when you start selling your product, so that’s…
Steve: Can you just comment real quick on how much it costs to get an inspection company; I imagine they are paid by a certain amount of time, right?
Peter: Yeah most of them will, they’ll look at the size of your order, and usually what the larger retailers do is they’ll have a random sample, the products is checked and there is statistical tables to figure out how many need to be checked. And then they’ll figure how much time it’s going to take to do that and charge you based on mandates. I would suspect that for most of the Amazon private label sellers, one mandate would be enough to do an inspection. That may not be 100%, it may be a good random sample.
And the typical mandate rates are around $300 although I have seen — and that would be from folks that are – I’ll say — I don’t want to use the word reputable, but a lot of the good inspection companies that’s the pay charge. If you search around you may be able to find folks that are less well known that charge less than that. I’ve seen numbers I think as low as $150, but I would recommend sticking with folks that are maybe a little bit more reputable and the…
Steve: 300 is actually in line with what we’ve gotten in the past.
Peter: Yeah, so that makes sense. And then the big inspection companies which can be more difficult for smaller entrepreneurial companies to work with, the bigger inspection companies are SGS, Pure, VeriTest, and Intertech. But then there’s a number of I’ll say mid tier inspection companies, Asia inspection, Intouch, V-trust, and they are all — and Sofist [ph]. And they are all pretty good for working with Amazon private label sellers.
Steve: Okay, yes so I just want to emphasize a couple of things about what you said that quality control or a QC checklist is actually really important. We import napkins and there was a time when we were just like, hey, ship us white napkins. And it turns out that there is thousands of shades of white which we actually discovered very quickly. So you have to get really specific on what you want in order to actually get what you want, because if you don’t specify something they will make assumptions, and almost always those assumptions will not match what you were thinking.
Peter: Yeah and it’s not that they are purposely trying to do it, it’s just that they are different assumptions. Plus they may also be trying to manage the cost and they’ll say, okay within these assumptions you gave me he said, white okay, this off white is a little bit less expensive so let me do that one, and it’s still right.
Steve: Or even materials like you will say you want curtain, but then they’ll give you like a blend or something like that because you didn’t specify 100%, stuff like that.
Peter: Yeah, absolutely, yeah so…
Steve: Let’s talk a little bit about just kind of interacting with potential vendors. So what are some of your best practices just for kind of the initial contact and like kind of the negotiation process? Like what are some common no, nos, when dealing with Chinese vendors?
Peter: I think what I would suggest first is a lot of folks are going to be contacting the suppliers via email, and one of the things to recognize especially with the – I’ll say the larger more experienced suppliers is they maybe capacity constrained or labor constrained, so they may not need new or more business, which then means you have to sell yourself to them. And in fact this is more likely among I’ll say the good suppliers who have relationships with a lot of overseas buyers, and those buyers keep coming back to them because they are good suppliers. As a result those suppliers have run out of capacity, so I think you should do a little bit more than just say, hey I’m interested in this product, what’s the MOQ, what’s the price?
It’s also helpful to introduce your company and try to explain something about why you will be able to help break that supplier into a new market or product line. We are very good in this, these are some of the channels that we use, we are expanding our product categories, we are very interested in your product, and we think we can help take this product to market. So to get the supplier excited about working with you, sell yourself to the supplier.
So I think that’s one thing to keep in mind. The second thing we talked about is the quality, I mean you are working across time zones, you are working across cultures, a lot of the folks that you are initially contacting they’ll be 20-21 years old, straight out of business English course from college. They may not have travelled internationally at all, so they really don’t — so the norms are different, just because you are crossing cultures and all those other things. So as a result it does become important to communicate very clearly and very explicitly.
I think the third thing and a lot of folks have said this to me also. A lot of the suppliers, I mean form a western perspective we view, hey this is the contract and the negotiation is over because we’ve agreed on the terms and conditions in the contract. And the China suppliers often view the contract as I’ll say the start of the negotiation. It’s more like, oh, okay, we are seriously going to do business now because they’ve given us a purchase order and a contract, we’ll sign it off and then as we go through the process we’ll identify whether there are areas that we need to adjust or change in order to meet their requirements. Which for a western or American perspective it’s a little bit different and then can create frustration. So just be aware of that upfront, and then it’s a lot less frustrating when it happens.
But that’s why from a western perspective just get those quality criteria upfront, get everything signed off upfront, get everything agreed to, then you can go back and say, no look, we agreed to this at the beginning, I really do need it this way. There are maybe things the supplier has asked that you can change, I don’t know packing quantities, number of pieces per curtain. I mean there could be a million things that they ask that you say, oh, yeah, that’s not a big issue; I have not problems if you change that if it makes it easier for you. But then there are other things that you will feel absolutely not, now this is critical to the success of this product in the market, so we can’t change that. But those kinds of discussions are going to happen maybe more often than most people expect.
Steve: So based on kind of what you said if a vendor is kind of over eager to work with you is that generally a red flag?
Peter: No I don’t think it’s a — that doesn’t go either way.
Peter: One valuable aspect of a vendor is how well they communicate, and good communication makes them easier to work with. That being said good communication itself, the executive that communicates with you well that doesn’t mean that he has any control over the manufacturing and production line, or the QC inspector if there is one on the manufacturing and production line. So I think good communication is a plus, but it doesn’t necessarily mean you are going to get what you want, you are going to have to take additional steps to make sure that you get what you are looking for and what you want.
Steve: Yeah, I mean we’ve had cases where the vendor has agreed to everything that we’ve said and we’ve been very explicit, but then when it comes to time to get the products it’s not what we said. I guess this kind of ties into what you mentioned about always getting an inspection company into play, right?
Peter: Yeah and what folks that have larger productions runs do is they’ll also ask for — they could ask for samples from the beginning of the production run, or have an inspector go in during the beginning of the production run. Because at the end of the production run if there is problems, that’s harder to resolve, but if you can identify this at the beginning of the production run, then it’s easier to make changes.
Or even nowadays just over Skype get one of the first pieces off the — they come off the production line and review them over Skype. Really what you are trying to think about is what are all the checkpoints that I can put in to minimize problems, maximize the odds that I’m going to get what I believe I need, and then minimize issues at the end of process, because if you get to the end of the process and you have issues it’s kind of too late.
Steve: Right, yeah, so you mentioned before that you kind of have to sell yourself to the Chinese vendors. What are some of things that you can say to make yourself look better in their eyes?
Peter: For startup entrepreneurs, in any industry it’s always going to be difficult to get started. But you can leverage either knowledge or success, we are selling these channels, we are selling in these volumes, we are selling our own website and third party market places, we’ve had a lot of success with these products that we are — and if you are importing them, that we are importing. If you are sourcing domestically that we are sourcing domestically, but we would like to move toward importing some products directly from manufacture. Just something that explains one — like cover the experience that you have, and something that explains why you are going to be able to grow with that volumes and sales.
Steve: Okay and do you recommend kind of negotiating the minimum order quantities in the beginning. And if you are like how would you kind of phrase those questions about minimum order quantities to not turn off the vendor?
Peter: Yeah, I know that’s a great question too. I think the three steps tends to be get a sample, review the sample, then do a trial order which is a different way of saying negotiate the minimum order quantity. And then move to orders that hit the minimum order quantities. And that middle step of the trial order, the conversation with the supplier can be, hey, we really like this product, we would like to do a trial order of whatever, 200 pieces, 500 pieces.
And the reason we want to do the trial order is to assess, one the quality of the product when it’s manufactured, and two to get market feedback when you try to sell it. Subject to the quality in the market feedback, we would expect to place orders that hit your MOQ requirements.
Peter: Every supplier is different, some suppliers will say yes, some suppliers will say no, it also depends on time of year. Right now everybody is maxed, any manufacturer right now because we are on holiday in China. But this time of year manufacturing capacity is kind of maxed out to get everything on the boat in time for Christmas. Other times of the year it tends to be slower, so depending on the time of the year it could also change the suppliers answer. Or if the supplier for whatever reason has additional capacity, he will be more open to a trial order with a small order size than if he’s got 15 customers with an order backlog of three months.
Steve: That’s actually a very interesting point, so would you recommend looking for new vendors towards kind of the beginning of the year when things are a little bit slower?
Peter: I think there is a lot of advantages to that plus with the lead times. And also if you are having maybe trouble getting feedback during the say August-September timeframe, check back in January-February. I mean each product category has a little bit of a different sourcing cycle. But yeah, I think one can check back in it at a different time.
Steve: Okay, let’s talk a little bit about quality control, I mean we’ve already talked about several things, the QC checklist, and the inspector. Is there any recourse for shipments that you’ve received that maybe inspected okay, but they are either late or damaged by the time you receive them?
Peter: I guess it would depend on the terms that you have in the purchase order. If you are buying FOB which is a pretty common term that means that the goods kind of moved to your I guess legal possession at the port in China if you are ocean shipping. Anything that happens after that is your responsibility. So if the goods get damaged in transit, it’s your responsibility. But quite frankly commercially once you’ve sent that final payment to the supplier, there is very — it’s very difficult to have any recourse. You might be able to get a discount on a future order.
Steve: Okay, because shipping it back would be prohibitively expensive, and so yeah you are pretty much stuck with it, right? Okay, and for — do you recommend putting in a shipping date clause in your purchase order?
Peter: I think so, yeah, and then also put in a clause that says, if you miss by whatever is important to you, if you miss by three days we are going to deduct 1% per day that you are late in shipping. But then during the manufacturing process, be careful about when you ask for changes, hey, I want the labels differently, hey I need the boxes differently, that they will not impact the shipping time. Because then the supplier will come back to you and say, well, hold on the reason we are late is because you asked for a change.
But I think it is a good practice to put in an agreed ship date, you are going to ask the supplier, hey, what ship date can you hack I’m going to put that in there. And then put in a clause that says, I don’t know 1% a day for more than 3 days late. And then whether or not you actually get that 1% back at least the supplier recognizes if he’s got two orders, hey this guy might penalize me if I’m late, this guy won’t. So yours might move up right, and you are increasing the odds of hitting ship date.
Steve: Okay now that makes a whole lot of sense. I’m just curious have you ever had cases where you spent — send an inspection company in, the whole production run is done and it’s sitting at the factory and the inspection guy goes in and says, hey, none of these are acceptable, what generally happens then?
Peter: Yeah, so again, we don’t do a lot of the importing ourselves, so I’m mainly relying on what I have heard from buyers and suppliers. If that happens usually often you’ll have paid your 30% deposit, manufacturing is done, you haven’t paid your remaining 70%. So at that point you will request the manufacturer to rework the product to meet the requirements and then have a second inspection done. And that would be a very typical process in that case.
Steve: Okay I want to switch gears a little bit now and just kind of talk about a lot of these people are going — these Amazon private labelers; they are having their stuff shipped directly to Amazon. And I have just kind of anecdotally heard that Amazon is now working with factories directly to getting their stuff and kind of cutting out the middle man or the private labeler so to speak. Are you seeing that happen and are there any reasons why a manufacturer would not ship directly to Amazon?
Peter: Yeah, I think well there is a few underlying questions here, let me cover each of them. The first is Amazon has some of their own brands, their own private label, just like the large retailers do. And those private label brands they will go direct to the manufacturer and say can you get this product for me. I think that Amazon basics is one of their private label brands.
So absolutely Amazon is going in and getting — going direct to manufactures and sourcing products. The second thing is there are a lot of common private label sellers, or third party sellers from China also are selling on Amazon as I’m sure folks have seen. And Amazon has offices in China and Amazon is supporting those guys as well. Amazon is an equal opportunity market place.
So as a private label seller you just need to be aware of the different directions the competition is going to come from. Amazon is not there to make your life easier; Amazon is there to make money for Amazon. And they are providing a great opportunity for folks to get in front of a good audience and providing a lot of great services to make it easier to sell products, but they are doing that for everybody. So you are competing against everybody when you’re taking advantage of those services.
Steve: So do you see that as a trend going forward then more and more of these factory and manufacturers are going to be working with Amazon directly to kind of reap the profits?
Peter: Well, so, yeah, let’s talk about that from two directions. The first is Amazon is a private label; Amazon goes to the factory to source its products, just like the large retailers do for their private labels. So that’ll probably continue. Second is Amazon helping manufacturers sell say the manufacturers own private label. And a lot of manufacturers are interested in this, and I’d say that there is three groups, one they are interested they haven’t tried it, they are interested, they are trying it and they are going to keep doing it. They are interested they try it; they are going to stop doing it. And I’ll explain some of what we see the manufacturers think about when they do this.
The first thing they think about is hey; well, if I do my own brand on Amazon I get great margins. So that’s very interesting to them. Then they realize, oh, but wait, it’s FBA so I have to manufacture stock without getting paid, and that’s risky and I’m not used to doing that, so maybe I won’t do this. Third thing they might realize is okay I manufactured this stock, I put it in FBA, but I don’t really know how Amazon works well right? I don’t have good native English skills, I don’t have good Amazon optimization skills, I’m not good at managing the people that leave reviews and following up with them etcetera.
So then a lot of them come back and say, okay, let me focus on what I’m good at, let me focus on what we are manufacturing and find other people who are better at selling whether they are retailers on Amazon, power sellers whoever to buy from me and let them handle the sales. It’s going to be quite a mix, but certainly the manufacturers are aware of Amazon and they are thinking about whether it’s something they should pursue or not.
Steve: Okay, what I was trying to get at is it’s not just some mad gold rush where a whole bunch of manufacturers are turning over to FBA. It just sounds like it’s a consideration in their business, and they just have to evaluate their needs and what they are good at it sounds like okay?
Peter: Yeah, and a lot of suppliers are choosing not to do it.
Steve: Okay, one other question that I constantly get asked is a lot of people who are manufacturing their own things, they are kind of worried about intellectual property theft. So you might take your design and have it manufactured, but then all of a sudden the design leaks, and all of a sudden a whole bunch of other guys are producing the same thing. How do you prevent that from happening, is there anything that you can do?
Peter: Well there are a number of things that you can do, and they all come down to — I’ll call it risk mitigation again. So there is – it’s difficult to be full proof and everybody has this issue, whether it’s a China manufacture has a new design or US or European design or brand owner. But one thing that I have seen done, if your product has multiple parts, have different manufacturers make different parts, and then bring it to an assembly facility, have the assembly facility assemble that.
And try to make sure that nobody knows kind of each of the contributors because then it’s harder to replicate, not impossible but harder that’s one. Second is to the extent that you can put some kind of intellectual property protection around it whether it’s a design pattern or some other kind of pattern, that’s helpful as well, but keep in mind that there are legal costs in enforcing that.
So if you do find that folks are doing something unexpected then you are going to incur some legal cost to enforce that. And then your enforcement actions you want to think about well which countries do I want enforcement actions in. Do I want to do them in China or in — I mean sales market the US or somewhere else. So there are some strategy involved in where you are trying to get your IP protection. So it is a challenge for everybody and…
Steve: It sounds like for a little guy they are unlikely to go the enforcement route, and so it sounds like the best option is to just kind of [inaudible 00:37:55] the design process by using different manufacturers, at least that’s what it sounds like to me.
Peter: Sure and then actually the third option is just do better marketing, so people know that your product is the real deal.
Steve: Okay, but there will still be clones out there at that point, right? You are just going to be out selling to clones essentially.
Peter: Possibly yeah, that sometimes happens.
Steve: Okay, let’s switch gears again and talk a little bit about trade shows like my wife and I try to go trade shows every other year. And I have my own stories, but I was hoping to hear some of your input about the advantage of actually going to shows. I know it’s quite intimidating for people to go to a brand new country. So I was hoping to get your take on and hopefully convince people that going to shows isn’t that intimating and it’s very valuable.
Peter: Why? Yeah, I completely agree with what you said not that intimidating and very valuable, but yeah, I’ll give you some comments. First I’m always amazed when I walk into trade shows; I’m amazed at how much product there is there. Because there is not enough just to stock at store, there is enough product to stock entire malls. And I’m just amazed by the depth and variety of product. For us we run shows twice a year in Hong Kong, our upcoming shows are in October. We have October 11th through to 14th we’ll have about 300 booths of home office electronics components suppliers. Then from the 18th to 21st we have a second set of show dates which should be a lot of mobile electronics products, smart phones, tablets, wearables, accessories. During those same dates 18th to 21st we also run a gifts and home product show.
And then from the 27th through the 30th we run a fashion accessory show and that has a lot of accessories, bags, caps, etcetera. So and we run those shows twice a year, it’s quite late for folks to make it up for these shows in October, but we run them every October and April. There is couple of things to know about visiting a show; first the shows — there are several organizers in Hong Kong and China the Canton Fair. And we all organize our shows around the same time. So a lot of buyers they come out and they visit each of the shows, or all of the shows that are relevant to them. And I would recommend visiting multiple shows to get a sense of the differences in which ones you like the best.
Second thing to keep in mind is the Hong Kong shows — Hong Kong is still English speaking. It’s very easy to get around, I think with an America passport you can just come in on a 90 days tourist visa. So it’s just a long flight that’s all, but once you get here it’s like — it’s pretty easy. A third thing about the trade shows is as I mentioned before a lot of the exhibitors at the trade shows, they are not marketing in other online channels. Now we do try to get them all on the globalsources.com site. So you’ll see different suppliers than you might see if you are only doing online research. Well even more important than that, a lot of the suppliers don’t put all of their products online.
So if you go to the show you can see additional products, and you can touch and feel them, and you can see maybe five or six or ten suppliers have similar products, and you can talk to them and get immediate feedback about any questions you have about the product or anything that you learned about the product. Then the very last thing to keep in mind is if you do meet a supplier face to face in the show and you start building a relationship, then they may start showing you products before they show anybody else. And you are less likely to get that as an online only buyer, so you end up getting better access to suppliers and their products if you meet them face to face at a show, and if you start developing that relationship with them.
Steve: A couple of comments here, one thing that I’ve noticed in the past is that vendors are very reluctant to give you like a listing of their products. And I think – I suspect it’s because they don’t want other people copying what they had to offer, but as soon as you see them face to face they’ll just show you everything.
Peter: Well also online they don’t know if you are one of their competitors emasculating as a real buyer or a real buyer. So that also makes them a little more cautious.
Steve: I also did also want to vouch that going to Hong Kong is actually quite simple, you can get by just speaking English, and the public transit system is very good. So it’s actually not that — it’s very easy to get around in Hong Kong, Canton…
Peter: You don’t need to rent a car I forget; whenever I go to a city in the US I’m often renting cars. I don’t need to rent a car in Hong Kong, public transportation and taxis are great, yeah.
Steve: I was just going to make a comment on the Canton Fair is a little bit more intimidating because not everyone speaks English, but you can still get by just taking a taxi, there’s a lot of hotels. I think I posted my itinerary in one of my posts of the exact hotel that I stayed at, and there’s usually shuttles that go back and forth on the fair. So you don’t really need to do anything there either.
Peter: Yeah that makes sense I mean the Canton Fair it’s in China, so there’s less English speaking. I think it’s also a little bit harder to get around, but if you are out for an adventure and like I said visit all the shows and get to know the differences between the shows.
Steve: What would you say is one of the big differences between the Global Source’s show and the Canton Fair?
Peter: Well what some of the buyers have told us and this is coming admittedly a little bit from say the larger retailers. But they prefer the Hong Kong shows including our show, because you’re getting more suppliers have export experience and they’re more export ready. At some of the China shows you may have more smaller suppliers, they may have less export experience. So that’s one of the differences that we hear some of the buyers that visit the show.
Steve: Okay and in terms of products selection, does Global Sources kind of specialize in a certain area or what are they strong at?
Peter: That’s a good question too. As I mentioned for electronics and consumer electronics I think we are super strong, I think you have to go to one of our shows if you are sourcing any kind of electronic or mobile electronics products. For gifts and home products we have a very solid medium size show working closely trying to bring suppliers and have more innovative products. So I think one should visit it.
The Canton Fair probably has a higher quantity of suppliers in that category, but maybe not the same kind of innovation or export experience, but I mean visit both. And then for the fashion products the scraps and the bags, we are pretty sure that we are largest show of those types of products anywhere, because there aren’t a lot of shows focused on those types of fashion accessory products.
Steve: Okay, I just also want to comment that Peter keeps mentioning that you can go to both. It’s actually very easy to go from Hong Kong to Canton. It’s just a train ride I can’t remember exactly how long it is, I think its 90 minutes, does that sound accurate to you?
Peter: Yeah, I was going to say about two hours I mean you have book your train tickets in advance because during that time of year everybody is going back and forth. And don’t take the bus because the bus takes like six or seven hours.
Steve: Yeah exactly, yeah, the train is super fast and so you can actually go — there is one fair we actually stayed in Hong Kong and actually took the train over really early in the morning to go to the Canton Fair, and then we came back to Hong Kong. I actually don’t recommend doing that, but you could if you wanted to.
Peter: Yeah no that’s exactly like some people will do a day trip, but as you said it is a long day and there is a lot of working when you are that he fair so…
Steve: Yeah, one other question I wanted to ask you is I’ve noticed actually with my vendors that the prices have just been increasing year over year at pretty significant levels. So what is a good way that I as a buyer can find cheaper prices or other vendors maybe in other countries or — what is the trend that you are seeing that’s causing these price hikes first of all, and what can I do about it?
Peter: Yeah, that’s a great question. We’ve had articles about this on our smartchinasourcing.com site on and off over the years. I remember one of the articles a buyer was saying, look if you are not going to be able to get a 30% price improvement by souring from overseas keep sourcing where you are sourcing, or sourcing from China. Because cost — this was a few years ago because cost in China keep going up. And the components of costs that are going up include labor costs, raw material costs, and the exchange rates.
Now if I would have commented on this two or three years ago I would have said all three of those are definitely going up. Now I would say labor rates are still going up no doubt about that, raw materials cost it’s unclear, it depends of what product you are sourcing, so you can check that. And the exchange rate interestingly moved about 3% in the other direction about a month ago. So kind of having an understanding of some of those underlying factors that are driving changes in pricing is helpful.
Then when again time is on the larger retailers what they do — well there’s two things they’ll do, one is they’ll try to do call it a bill of materials costs things. So they’ll try to get component costs, try to figure out the amount of labor it takes to assemble the components, then try to figure out what a fair manufacturing price is. I think that’s a little bit challenging but that’s an approach some folks take. A last approach is just get multiple quotes, so some of the larger retailers they require getting three quotes for a particular product. Then use the different quotes in the negotiating with the supplier. Say hey, I would really like to work with you, but I have this quote from another supplier that’s this price and I don’t really understand or I’m wondering if you can help me that price. So those are some strategies.
Steve: I knew for myself like going to a new vendor is such a pain in the butt, like we have to go through this whole quality control process again even though we specify everything on paper, there’s always things that we don’t specify even though we’ve done this for many years. So the cost is switching and it seems to be pretty high for us at least.
Peter: No I think that’s true for a lot of folks, so you want to think about how much — at the end of the day the best outcome is stay with my current supplier and get a good price. So if you get quotes from other folks you can go back to your current supplier and say, look I really like working with you, but we are really having a tough time in the market. There’s other suppliers, or we are getting quotes from other suppliers for these prices. But you got to be careful, the other suppliers may not be understanding your quality criteria right, like you mentioned. And you have to be very careful about how you do that conversation, because you could damage the relationship with the existing supplier.
Steve: Absolutely, hey Peter I want to be respectful of your time we’ve been chatting for almost 50 minutes. If people want to find a little bit more about Global Sources or if they have any questions for you, where can they find you, and what are some of the resources that you guys provide?
Peter: Yeah, I think the best place is globalsources.com. One of the things we didn’t talk about if people go to the site and they want to keep updated on new products as suppliers post them, they can sign up for products alerts on the globalsoruces.com site, so that’s a great resource. Second we talked about the magazines, the magazines are great for let’s say browsing and discovery, and we have PDF versions of those magazines by product category, people can find those at globalsources.com/magazines.
And for the trade shows they can learn more about them at globalsources.com/exhibitions. And we spent a lot of time on best practices for importing from China, and we have a lot of content on that at smartchinasourcing.com. So I think those are all great resources, if folks need to contact us, we have customer service links on our website. If folks who want to reach out to me they can go through the customer services, and the customer services folks will reach me.
Steve: I just want to also mention so everything is free right, these PDFs, these magazines are all free going to the tradeshow is also free.
Peter: That’s correct; I think for the trade shows if you don’t pre-register we’ve started charging I think it’s 100 Hong Kong which is about $13 US, but yeah.
Steve: Okay, yeah, more or less free. All right Peter thanks a lot for coming on the show.
Peter: Oh no, my pleasure, thank you for having me.
Steve: All right, I appreciate it take care.
Peter: Take care.
Steve: Hope you enjoyed that episode. Global Sources is a great place to find vendors from Asia especially if you are selling into the electronics and accessory space. It was pretty cool to hear from the CIO himself and get advice from someone who deals with Chinese vendors every single day. For more information about this episode go to mywifequitherjob.com/episode99.
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