How to stay afloat in the rough waters of foreign manufacturing
In today’s world there is a constant demand to produce everything better, faster and cheaper, and foreign import seems to be the perfect solution. It has become so popular, in fact, that anyone can do it from their home computer. Over the past decade, there has been an explosion of independent online retailers, thanks to online retailers like Amazon and sourcing sites like Alibaba.
But for those still green to the industry, importing can feel a bit like trying to swim through rough, shark-infested waters. Many have made the attempt and many have drowned.
One Utah company has survived these rough waters: BGZ Brands, LLC. Recently named the fastest-growing phone-accessory company in the United States, BGZ has achieved enviable success, in major part by importing.
Kirk Feller, president and CEO of BGZ, explains that only a small percentage of the company’s actual product manufacturing process takes place in the United States. “Nowadays it’s next to impossible not to go to China, their pricing is so cutthroat. We can produce product for nearly a third of the cost there,” he says.
There are, however, a few barriers to entry in importing. Foreign manufacturers make their biggest profit off bulk production, and most startups aren’t looking to purchase thousands of units in their first few orders.
“I would say that anyone ordering under 25,000 units per year isn’t at a level to maintain good control with a factory. A great place to start is Alibaba or Globalmarket.com, where you can place smaller orders and work your way up from there,” says Feller. “One thing you want to be aware of is that a lot of the time you’ll be dealing with a middleman broker, not an actual factory, which means you’re being charged more. It’s usually small amounts of money but, bottom line, every penny you can save helps.”
When looking to develop a long-term relationship, actual visits to the factories are vital, he explains. “We started visiting the factories and bringing returned LDS missionaries that spoke the native language, which helped so much. We were able to pick up on whether we were dealing with a broker or the actual factory manager, and negotiations were a lot smoother.”
Recently, BGZ hired a full-time foreign-relations operative, who had lived 10 years in China and is fluent in several languages spoken in Asia. “Since bringing in someone who really understands Chinese language and culture, we’ve been able to establish higher relationships with factory executives and get better prices than ever before,” says Feller.
Do your research
Foreign factories usually have a “brown price” and a “white price” (these are actual import-industry terms, says Feller), meaning factories give more favorable pricing to their fellow countryman and raise the prices on foreigners. The way around this: large orders and good negotiation. The more you buy the more you become a priority.
“It’s also important to keep the factories competing for your business. We use a few different factories. If they know you have options to take your business elsewhere, they’ll be a lot more open in negotiations and it will help with quality control,” says Feller.
For BGZ Brands, quality control is crucial. Each time a new Apple or Samsung phone is released, BGZ is at the forefront of accessory sales at launch.
“Our peak sales happen in the first two weeks after the launch of a new phone, so we have to be ready with product. The risk is, we don’t get to see the Apple phones we’re designing cases for until they’re released to public, just like everyone else. Our designers are going off specs we receive from the phone companies. So, in the manufacturing process, if even one little thing is off, we’ll have large amounts of money invested in a product that won’t sell,” Feller says.
Protect your assets
Nowadays, BGZ has placed full-time contractors on the ground in the sourcing factories, solely for the purpose of quality control. Even with all the necessary IP protection and precautions, however, Feller warns, “There’s a certain amount that’s going to be taken from you. Other people will try to copy your product and undercut you in sales. You just have to be willing to deal with that.”
Says April Feller, chairman of the BGZ board, “Know your trademarks, and play by the rules. A lot of people don’t realize that products from international sites are potentially already trademarked by another company. They order these products online, try to sell them, and come under fire because another company already owns that trademark.”
Bottom line, do your research on a product before investing in it. Know the laws, and protect original work with trademarks, copyrights and patents.
As a final tip, the Fellers advise, “Your best insurance policy will be to have everything written out and signed by both parties.” Think carefully through the potential risks and pitfalls, from product design to manufacture to shipment, and pin it down in writing.
Importers should constantly seek ways to innovate and improve upon current systems, and also learn from those who have successfully navigated these waters. The tested-and-true advice from key players like Kirk and April Feller can serve as a lifeline.