How to Tackle the Risk of China Sourcing Without Hampering Profit

The rapid development of China’s manufacturing sector made sourcing from this country a mature and standardized process. Along with the opportunities, there comes the risks of procuring goods from China. Many things can go wrong at the time of sourcing goods from China. However, by managing risks strategically you will make a lot of profit, and you are on course to building a successful business.

Successful Sourcing Strategies Typically Include

  • Selecting suppliers through a methodical plan
  • Verifying and vetting suppliers
  • Figuring out payment and managing quality control
  • Deciding which sourcing method (direct purchase, commission-based sourcing agent, using a sourcing provider or a trading company) best fits your needs

Order High Volume Products From China

Chinese manufacturing companies have powerful production capabilities to produce goods in large quantities. Lower manufacturing costs are made possible because of higher volumes. It is suggested to all the foreign business owners to order high volume products. The higher the volume of the product or component, the lower the cost. Trade companies make money by selling products. Choosing the wrong products means you are losing time and money. If you’re going to be a successful importer, the first thing you need to do is to choose the correct product for resell. With a solid roadmap and China sourcing strategy – you can build a profitable business for yourself with a relatively small amount of time/work.

risk assessment

China Import Duties

The rules of origin are criteria to determine the source country of a product, based on which they either get tariff concessions or are subjected to duties. The following three types of taxes are applicable to companies importing products from or exporting products to China:

  • Value-Added Tax
  • Consumption Tax
  • Customs Duties

Landed Cost

For businesses involved in sourcing, the cost of freight and duty on items procured from China can be quite significant. Landed cost refers to the total cost of a product (a shipment) one needs to pay, from the seller’s warehouse/manufacturer to the buyer’s warehouse/facility. The landed cost includes the original price of the product, transportation fees (both inland and ocean), customs, duties, taxes, tariffs, insurance, currency conversion, crating, handling and payment fees. Companies have to analyze all the different expenses involved in a purchase transaction, adding them to arrive at the landed cost of the operation.

China may apply tariff rates significantly lower than the published MFN rate for goods that the government has identified as necessary to the development of a key industry. For example, China’s Customs Administration has occasionally announced preferential tariff rates for items in the automotive, steel, and chemical sectors.

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