Beginner's Guide: How to Import from China to the Philippines

The definitive guide for first time entrepreneurs looking to source and import goods from China to serve Southeast Asian clients.

Luis Gan, VP Business Development

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October 11, 2018

Intro

My name is Luis, VP for Business Development for Taikuun and serial entrepreneur. I started my first business selling dish-washing soap to restaurants in high school, and currently operate four separate online and distribution businesses that source goods and materials from China. I learned to search for products, negotiate with suppliers, and find the best logistics partners over the years. This is my chance to share my knowledge and experience with you, as well as how Taikuun can help your business.

For those planning to start businesses or are considering sourcing ingredients or parts from China, here’s a quick rundown of necessary steps to take in order to successfully start a business importing goods from China to the Philippines.

Any successful business begins with a great product. Think of products that are riding on upcoming trends, latest technologies, or emerging market opportunities. It's always good to reflect on products or categories that you are quite familiar with, giving you a distinct advantage in knowledge and decision-making for your business.

Stay away from products with a lot of competition to avoid price wars and to keep your margins healthy. Do your research, talk to people, and define your market.

Step 1: Finding the Right Supplier

Suppose you have the right product for a good market in mind, it is more important to find the suppliers who can give you quality products at reasonable prices.
There are several ways to find good suppliers in China.

First, go on B2B ecommerce websites to find suppliers and the products they offer. The most popular website would be Alibaba (www.alibaba.com) and what I’ve used the most to source my items. It’s important to take your time selecting a supplier to interact and to work with.

A rule of thumb for spotting a good supplier is to look for the badge “Gold Supplier” which indicates a premium membership on Alibaba.

Keep an eye out for information such as how many years they have been operating, how many transactions they have conducted, and browse their company profile to give you a better understanding of their business.

Aside from this, make sure they comply with Trade Assurance, Secure Payment and offer Paypal as a payment method as these serve as protection against improper deliveries or scammers. It’s better to keep away from suppliers without any of these certifications, even if they offer very low prices. More on this later.

Once you have selected a handful of suppliers, the next step would be to contact and inquire about their products.

Step 2: Dealing with the Supplier
Connecting with suppliers is fairly straightforward - you start by chatting with them on the Alibaba interface or can choose to take the conversation directly on email or WeChat, one of the few messaging apps allowed in China.

Keep in mind that the person you are talking to is a sales agent of that company, trained to handle inquiries day in, day out. Be polite and professional, but also exercise caution.

To begin your engagement with a supplier, it is typical to request this set of information about your product which the sales agents would usually have on hand.

- MOQ (Minimum Order Quantity)
- Payment Method
- Shipping Process
- Price List and Spec Sheets
- Sample and Delivery Lead Time


Get a feel of the seller and try to hold their attention. Remember, they are agents always looking to close sales, competing with all the other suppliers on Alibaba for your business.

Take note of their customer service and professionalism which is an indicator on how the company will do business with you in the future. Make sure to ask the right questions in the beginning about the products they have and services they offer to know if they are promising and worth pursuing.

Some tips:

Don’t be daunted by the extremely large MOQs presented by suppliers. Most of the time, except for large companies who only sell in bulk, suppliers are willing to ship orders way below the MOQ. The trade off, however, will be higher prices.

It is acceptable to haggle and negotiate prices with the supplier so don’t be afraid to try your luck. There will be some cases wherein you can get lower prices simply by asking, or by negotiating with accessories and packaging.

You can always compare prices of similar items between suppliers and sometimes use this as a negotiating tool. Alibaba also offers an RFQ (Request For Quotation) feature that asks you to input details about the product you are looking for, and will offer you a few quotations from suppliers for you to choose.

Make sure to check the locations of suppliers as shipping expense can add a lot on the cost of products. In my experience, I was set on a supplier that offered very low prices, but was located in the northern tip of China. Even with low unit prices, the extra costs for transportation to the port turned out to be quite expensive in the end.

Once you have found a good supplier that offers agreeable pricing, the next step is to ask for samples.

It is possible to request samples for free, however you would surely have to pay for the shipping. They are often shipped via express delivery (Fedex, DHL) and should not take long to arrive.

Always make sure to ask for samples of a few products before placing an order.
This is one way to test the quality and consistency of the supplier and their products. It is very risky to buy from a supplier without first seeing samples of their product.

Put the samples to the test and scrutinize every inch of them. This is especially important if you’re going to be selling the items locally, the quality will then be attached to your brand. The sample can also be used for protection incase the delivered item is not of the same quality.

You can also ask for accessories, swatches (for different colors and variants), samples of packaging options, and physical catalogues to help you gauge the legitimacy of the supplier. Others can pretend to be manufacturers but are actually traders who will have placed markups on the products, giving you higher costs.

Once you are satisfied with the sample product and have decided to proceed, it is time to place the order.

Here are some samples I've received over the years: 

Step 3: Ordering your product
After negotiating and agreeing on quantity, specification, and price, a supplier will typically send a PI (proforma invoice) that will provide a detailed list of all the items and corresponding costs of your order. Be sure to review this document thoroughly and take note of these:

1. Calculate the exchange rate being used when dealing in USD or RMB, as overlooking this could significantly affect your costs.

2. If you plan to pay with Paypal, suppliers may charge a Paypal fee to make up for the transaction fee the service takes. Clarify if this has been included already.

3. Delivery method should also be discussed when finalizing prices. Your invoice may or may not include delivery to the port or to the warehouse of your supplier. Make sure to clarify this to avoid additional cost

Once the invoice and all item costs are clear to you, a down payment (or full payment) is required before suppliers will start on your order.

Payment Methods
Alibaba offers a number of payment methods to deal with suppliers.

The primary way for payment is to use Alibaba’s Trade Assurance that offers buyer protection to customers incase the order is not shipped on time or the products don’t meet the desired quality. Trade assurance allows you to pay using Credit Card or Telegraphic Transfer.

Learn more about using Trade Assurance here.

Another option is to use Secure Payment wherein your payment to the supplier is held in escrow by a third party, Alipay, a member of the Alibaba group of companies. It is only disbursed once the buyer and seller have agreed that the transaction has been properly completed.

You also have the option to use Paypal which is the simplest way to send the payment, however this is the least secure mode of payment and you have to watch out for the higher exchange rate and transaction fees that may diminish your margins per unit significantly.

Under no circumstances should you risk using direct wire transfer to the supplier as this offers you no protection against bogus suppliers who can vanish after receiving a down payment.

Before you make payment and give the go signal for the supplier to produce, be sure to canvas logistics prices and secure a trusted forwarder first. The cost of shipping will always be a factor in determining the feasibility of any importation business.



Step 4: Arranging Import Logistics

Now that all arrangements with the supplier has been finalized, its time to tackle getting your goods from China to your door.

First, determine the incoterms of the transaction. Incoterms are the rules on ownership and responsibility which both you and the supplier abide by for transporting your products.

The most commonly used terms are FOB (Free On Board) which means the seller’s responsibility of the goods ends when the goods have boarded the shipping vessel. EXW (Ex Works) means the  supplier’s responsibility of the goods ends once it leaves the supplier’s door. In both these arrangements, the buyer shoulders transportation fees. Read more about Incoterms here.

You also have to decide between shipping your items via Sea Freight or Air Freight. The use of air freight is significantly more expensive and is often charged by weight but ensures a speedier delivery time, usually arriving within a few days. Therefore it is more advisable to use air freight for small, light items or very urgent orders.

Most importers use sea freight which is much more cost-efficient. The downside is it would take much longer, often a couple of weeks, for your goods to arrive.

Whether you decide on using sea freight or air freight, it is best to go through a forwarder to help facilitate the entire delivery process. A forwarder is a company that organizes shipments for customers and handles the entire delivery process from trucking, shipping, customs brokerage, and delivery.

There are plenty of local forwarders to choose from, and Taikuun is the best way to connect with trusted forwarders and get quotations for your shipment. Visit www.taikuun.com to find out how.

To get a quick quotation from the forwarder, you should have a proforma invoice and packing list which your supplier should provide. A packing list is a document containing information about the item’s weight, volume, pick up and delivery destinations, and how it is packed. This will be the basis of their quoted prices for delivering your item.

It is not advisable to simply look for a company that offers the lowest rates. Work with an honest forwarder that gives importance to customer service and integrity. Poor customer service could cause you worries and anxiety, while unclear terms and dealings could put your items at serious risk.

Negotiation is a common practice when dealing with quotations and payment terms of forwarders. As they value your business and want to create a long-term partnership, they would often be willing to negotiate for better rates and terms.

It is also strongly recommended to secure an import license for your business before you start importing.
Step 5: Payment and Completion

Once you have an acceptable quotation from a trustworthy logistics partner, you can proceed to placing the final order with your supplier and completing payment.

Instruct your supplier to release or deliver the goods only when your forwarder gives the go signal to avoid any lost or misplaced items. 

You can also opt to connect your supplier and forwarder directly for communication to make sure everything is ready before the items are cleared for shipping. Whenever items change hands - from the supplier to the forwarder, as much as possible ascertain that the goods are complete and in proper condition. Having misplaced or damaged items without tracking the responsibility or liability could be very costly.

All that’s left is to wait for your goods to be produced, to be turned over to your forwarder, and for it to arrive in the Philippines. Whether using air or sea freight, the importance of having a trustworthy forwarder is most evident between the time it is ready for shipment and when reaches you. Pick a forwarder that would communicate the whereabouts of your goods, because not knowing could create anxiety, especially for first-timers.

Once your goods have safely arrived with the help of your forwarder, you can now get on with your business!

We hope this article has given you some insights on how best to start or improve your business. Stay tuned for more posts brought to you by Taikuun Insights.

Luis Gan

Taikuun VP for Business Development

Former Procter & Gamble Sales and Key Account Manager
University of PH Business Admin Magna Cum Laude 2017

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