Interview with Kyle Vucko from Indochino.com

Kyle Vucko - Indochino CEO & co-founder

Kyle Vucko – Indochino CEO & co-founder

 Kyle Vucko from Indochino was recently kind enough to do an interview detailing some of his exploits doing business in China along with advice for those just starting. For those not familiar, Indochino was started by Kyle and his partner in 2006 and has since totally changed the job of buying a tailor made suit. Customers can simply enter their measurements following Indochino’s easy step by step process and they will have a custom tailored suit made for them in China and delivered anywhere in the world within a few weeks. Best of all, the quality of an Indochino suit is on par with those costing several thousand dollars more.

How and when did you get started importing from China?
In 2006, my co-founder and University of Victoria classmate Heikal Gani shared the story of his struggle to find a suit. We saw a missed opportunity in the space – delivering men’s custom apparel cost-effectively – and traveled to China to find a better way of helping guys get dressed.
My first trip was in fall 2006 when I took a semester out from school to look at options. Heikal and I moved to Shanghai in 2007.
When and what was the first product(s) you imported from China? How big was the order?
The first custom suits, dress shirts and pants were shipped in single orders in March 2007 – I was measuring friends and making garments for them. At the time no one was doing mass-customized apparel so we had to build our infrastructure from scratch, doing most of the work ourselves.
What’s one of your favourite things about doing business in China?
I enjoyed building relationships with our early suppliers. We didn’t use contracts – instead we had an ongoing dialogue where we developed a process together and evolved pricing over time as order volume and relationships developed.
Kyle Vucko with a tailor in China

Kyle Vucko with a tailor in China

What is one of your least favourite things about doing business in China?
I found that it’s very hard to get a real answer from suppliers – and they always outsourced something!
I remember the first producer we worked with was a sales guy who employed a third party tailor to make our garments. So we went to the tailors directly, but it turned out they only made the jackets and outsourced the pants. After getting them to change that, we found out that they still outsourced some of the hemming and pressing to another facility.
Do you have a funny story or two of ‘culture shock’ while doing business in China?
Oddly enough, not really. I actually had reverse culture shock coming back to Canada! I had left university with little experience to set up a company in China and quickly got used to their fluid, relationship-building way of conducting business. Returning to the very regimented, black-and-white North American approach was a real learning curve.
What’s one thing you know now about importing from China that you wish you knew when you first started?
Importing from China is a very different story from when I started out. Factories nowadays are used to working with western companies and have the communications, tools and processes in place that simply weren’t available to us seven or eight years ago.
One piece of advice I wish I had been given is to work with a professional factory right from the start, even if it means paying a bit more. They will help bridge any inevitable gaps in your knowledge in terms of quality expectations, build specifications, etc.
Do you have any tips for other entrepreneurs looking to import from China?
My experience has been that specific regions in China tend to specialize in certain products, so you will often find that the vast majority of one type of product is made in a single city. I suggest you try to identify the hub where the kind of product you are developing is made. This will make sourcing factories much easier and generally lead to a high quality producer.
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It’s Canton Fair Time! Tips and Advice

canton fair Pazhou Complex5The Canton Fair will be taking place from October 15 to November 4 and many readers of this blog will likely be making their way down to Guangzhou. For those who are, and those are considering it in the future, here are some of my tips:

  • Registering before the fair saves time but you can register at the fair (especially important for those who are in a mad panic because they never received their invitation)
  • Make sure you attend the right phase of the fair. You don’t want to turn up for the Automotive phase while looking for a furniture supplier.
  • Take everything a supplier says with a grain of salt. Every supplier will say they sell to Walmart, have a 30 day lead time, and is a factory (not a trading company). Treat everything said with some skepticism
  • Setup a secondary email account. If you are generous handing out business cards, your email will be put on ten thousand different Chinese email lists. Some of these emails are actually quite useful but you probably don’t want your inbox flooded with them.
  • Remember, you need a visa for China! A Chinese Visa is straight forward to get (any major city with a sizable Chinese population normally has a consulate you can apply through).
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It’s Canton Fair Time! Pros and Cons of the Fair

Next week is the start of the bi-annual Canton Fair in Guangzhou, China. Starting on October 15, it will run until November 4 over three phases. The Canton Fair is the largest trade show in China meaning it is one of the most important in the world. During the Spring 2014 session, there were nearly 25,000 exhibitors (yes-25,000 potential suppliers!) and nearly 200,000 buyers.

Canton Fair

Canton Fair Exhibition Grounds

I’ve attended the fair before and despite the fact that I will be in China during this time, I won’t be attending the Canton Fair this year. Time and distance (I’ll be in northern China) are part of the reasons why, but there’s also several other reasons why I won’t make the trip to Guandong Province . Here’s a short list of some of the negatives to the Canton Fair:

Negatives

  • The focus tends to be on mass-market consumer products. I like to focus most of products on a narrow niche and while there is literally a supplier for everything, generally I find a trade show targeted to one niche (i.e. Camping, Solar Products, etc) to have a better selection of quality suppliers.
  • Too many buyers! The Canton Fair attracts hundreds of thousands of buyers meaning that there are likely to be competitors in your local market also considering the same suppliers you are considering. If a supplier is selling to multiple competitors in your market it can really drive down your prices.
  • It’s difficult to relationship build with suppliers. Suppliers will be seeing hundreds of potential clients over the course of the fair. Your time will be divided amongst these other buyers and you quickly turn into simply another business card.

Positives

  • Lots of suppliers! With over 25,000 suppliers the Canton Fair is the perfect venue to get your feet wet in importing from China. You will find a supplier for nearly every product imaginable: just make sure you attend the right phase of the fair.
  • It’s well organized. Transportation to and from the fair is quite easy and accommodation rarely tends to be much of a problem (of course expect to pay higher prices for rooms). Registration is also straight forward and lineups are minimal given the size of the fair.
  • It’s the biggest fair in China. This means many of your existing suppliers may be there, representatives from most major industries will be there (i.e. shipping, overseas agents, etc.), and even your colleagues and friends might be there as well. Overall, it’s a great networking opportunity.

 

 

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Is it big or not? Your Order Sizes in the Eyes of Your Supplier

When I first started importing, I always wondered what my suppliers would consider a big order and what they would consider a small order. Admittedly, even today I am not entirely confident on this although I have a better understanding. The table below gives my experience on how a supplier views potential orders based on their dollar amount.

Total Order Value Chinese Supplier’s Perceived Value of You
Under $500 per SKU Small buyer. Little incentive to negotiate on price or fight for your business; May not respond to emails, phone calls, etc. Any order will be of least priority.
$500-$5000 per SKU Small buyer. Enough profit potential to offer some flexibility on pricing. Normally responds to communication requests. Some priority given to the order if the right buttons are pushed.
$5000-$20,000 per SKU Serious medium/large buyer. Will offer price discounts to get your business. Order is of good priority to ensure you stay happy.
$20,000+ per SKU Large buyer who must be a major player in their market. Ultimate price flexibility offered and top priority given to their orders.

This is entirely relative to the size of the supplier of course. For Foxconn, $10,000 worth of a SKU wouldn’t even get you in the door, while for other suppliers $10,000 would get you their first born. However, it gives a very rough idea of where you’ll potentially stand in the eyes of your supplier.

What have your experiences been?

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China and Tariffs/Duties and Most Favored Nations

When you are importing goods into your country, you will have to declare the goods to customs and possibly pay duties. It may come as no surprise to you that, depending on which country you are importing your products from, you will pay different duties. So a toaster being imported from Canada into the Unites States will be treated differently than one being imported from China into the United States. If you live in North America, you probably know about NAFTA (a trade agreement which ensures most goods are duty free).

When I first started my career in importing and I learned about this I thought, Surely China must have a lot higher duty rate than other countries seeing as China is stealing jobs from all of us Westerners and governments typically want to encourage local manufacturing.

Wrong.

Most countries have three levels of duties for countries:

Most loved (or at least we signed a free trade agreement with you)
Most hated (think Axis of Evil)
Everyone else (ironically called most favored)

 

 

Tariff Rates for Countries

Harmonized Tariff Schedule for the U.S.  with different rates listed

So if you’re like me and you want to start importing “Tileboard which has been continuously worked along any of its edges and is dedicated for use in the construction of walls” (seriously what is this?) you will pay anywhere from 0% to 45% depending on where it is coming from.

While classifying your goods can be tricky, knowing which duty rate applies to it is simple. The middle category, “special”, is reserved for countries that have special trade agreements with another country.  So in this case, that would apply to countries like Canada (this tariff schedule is for the U.S.). The third column is reserved for the truly nasty of nasty countries which likely have severe trade sanctions on them. Think North Korea. There are only a very small handful of countries that this applies to and if you are new to importing and thinking about importing from these countries, all I can say is good luck to you!

The first column is the most interesting. This is ironically referred to as the “Most Favored Nation” category. (so what is a country like Canada? most-est favored nation??) Most countries, even if they have somewhat iffy relations with your home country, i.e. China, fall into this category. Generally, for a country to be removed from another country’s “Most Favored Nation” list is paramount to diplomatic war.

So a very long story short, China is considered a “Most Favored Nation” by most countries. So, if you’re importing “Tileboard which has been continuously worked along any of its edges and is dedicated for use in the construction of walls” and it has a density exceeding 0.8g/cm, refer to the first column. Therefore, you will actually pay 0% duty on it. However, if you’re importing that same product from North Korea, you will pay 30% duty on it and you may want to re-consider that trade-trip to Pyongyang.

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Dealing with problems with your supplier

 

You will eventually have problems with your suppliers. China manufacturing gets portrayed, for better or worse, as having proportionately more problems than the West. Whether or not this is true or not, the Chinese way of dealing with these problems is vastly different than in the West.

My significant other once made me read a relationship book that taught that in every relationship you make emotional deposits and withdrawals. As long as your account has a positive balance, your relationship will be healthy, and if you make more withdrawals than deposits, it will be unhealthy. The same is true with your relationship with your supplier.

Assuming you are a relatively small company, you must understand that just by placing a relatively small order you are making a relatively small deposit into your relationship with your Supplier.  One of the problems I see often is that Westerners over-estimate the size of the deposit their small order represents. Small orders are often fine, but you must be sensitive to how much you can withdrawal.  If after you receive your first order you complain to your Supplier that one of the boxes you received had a small tear in it and you would like to receive a replacement you have effectively drained your account with your Supplier. They will likely stonewall you and/or refuse to deal with you in the future. In fact, I would suggest that if you ask for any compensation for a relatively minor issue within your first few orders, you will drain your account with your Supplier.

How to create positive deposits with your Chinese Supplier

How to create positive deposits with your Chinese Supplier

The more withdrawals you make into your Supplier/Buyer account the more deposits you can make. Good types of deposits are:

  • Big orders
  • Big orders
  • Meeting your supplier
  • Mailing a small gift during Chinese New Year
  • Paying promptly
  • Sending limited emails/phone calls back and forth

And by the same token, types of withdrawals:

  • Asking for compensation for a small problem
  • Sending more emails than necessary
  • Asking for unreasonable discounts
  • Using any language that causes your supplier to lose face

I’ve used a bad “Relationship Self Help Book” metaphor but the above really comes down to the Chinese long term view of relationships. For us in the West it can be agonizing the length of time it takes to make these deposits (often years) but it’s necessary when doing business in China. For those who are impatient, often they get surprised when their emails no longer get answered by their supplier: a clear sign they bank account has been overdrawn.  However, if you keep a positive balance in your Buyer/Supplier relationship, you can potentially get preferential treatment over their other clients, who may be your competitors, and you can make larger withdrawals.

 

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Non-Deliberate surprises when receiving your products

A lot of importers may be familiar with deliberate actions from Chinese Suppliers which reduce product quality, such as substituting an inferior material without telling the buyer. However, along with dealing with issues like these (which are common in China) there are also the non-deliberate, but equally as frustrating, actions by Chinese suppliers which also compromise product quality.

One of these situations arose last week when we received a new shipment from our supplier. Before we placed the order we asked that all items have our bar code affixed to them. Upon receiving the new shipment, everything looked fine except  for one of the products that came packaged with 2 inner boxes per master carton (i.e. each carton had 2 products in it, individually packaged). For some head-scratching reason, they decided to bar code the master carton and not the two cartons inside. Subsequently we had to manually re-barcode all of our items ourselves. Our supplier likely did this out of sheer ignorance rather than malicious action, but alas, that is China.

Over the years, I’ve encountered several such occurrences.  Some of the best are:

  • Having a decorative stainless steel item engraved in very large letters “MADE IN CHINA”
  • Ordering spare replacement screw kits for one of our items which included 64 different screws per item.  Each different screw was mixed together in large box rather than separated out
  • Marking boxes containing black widgets “White widgets”, and marking the white widgets “Black Widgets”
  • Routinely on Master Cartons only Chinese Characters or some other ambiguous markings

I’m sure every importer could include their own list of head scratchers.

The big issue with these types of things are that you cannot plan for them. Even if you try to identify every foreseeable problem clearly in your order specifications, your Chinese Supplier will eventually find an unforeseen way to surprise you.

While no matter how clearly you lay out your specifications you may still be surprised, doing this will lessen how many times you experience such things. Ultimately though, one of the only ways you can truly eliminate such things is to actually have boots on the ground inspecting your shipment before it leaves China.

 

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Customs Examination (Part 2)

If you followed my previous post, Types of Customs examinations, you will know that last week one of my company’s containers was pulled aside for a customs examination. This is an extremely frustrating part of importing as the end-result of these examinations is normally either a) a big invoice or b) a bigger invoice.

The freight forwarder in charge of this shipment issued us the invoice and it was as follows:

Charges for a 20' Container Examination

Charges for a 20′ Container Examination

You’ll notice not only were we charged for the actual examination of the container, we were also charged for the moving of the container, various “in/out” charges from the port of Vancouver, and of course, the obligatory “admin fee” (which we were actually charged for twice). Adding to the frustration, you normally get five days to pick up a container. Common sense would say that this five days should begin after the examination (as you can’t pick up the container prior to this) but every day in examination counts against this.

Keep in mind, this examination was completely random and they found nothing improper with the shipment and we were still invoiced for this.

If you read my previous blog post you will also know that initially I was told this was a simple “dock side” exam but this was the much more intrusive CEF exam. My initial suspicion I was misinformed about this being a dock side exam.

Long story short, an importer likely has cause to resent the customs examination process a great deal. However, currently, it is what it is, and it’s one of those inevitable costs of being an importer.

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Types of Customs Examinations

Once or twice (or even a few times) per year I get notified that one of our shipments has been selected for a customs examination. One of those times occurred this week at the Port of Vancouver as I was just informed it would be a “Dockside Examination”.

Admittedly I’m not an expert on the whole examination process so the word “Dockside Examination” wasn’t clear to me.  However, I knew that earlier in the year we were footed with a bill for over $1000 when a container was taken aside (i.e. transported many kms to an offsite facility) and inspected. So my suspicion was that a dock side examination is performed at the port, meaning it doesn’t have to be transported to another facility, hopefully meaning that the charges won’t be as high. As an aside, in case you’re not aware, the importer must bare all of the costs associated with an examination, which IMO is a severely flawed system, but it is what it is. As per The Canada Border Services Agency:

It is the responsibility of the shipping industry to select warehouse operators for the transportation, unloading, and reloading of containers at centralized examination facilities. The facility operator generates the fees for presenting the goods for examination, to cover the cost of transportation to and from the examination facility and for unloading and reloading the container. The facility operator bills these costs to the shipping lines that in turn pass the cost to the importer.

CBSA Website

U.S. Customs says roughly the same thing here, as well as most other countries I suspect.

In my research of different examination processes, I found that there are essentially three types of examinations Canadian Customs will perform:

  1. Examinations at a container examination facility (CEF) BAD
    The container is moved from the port to another facility and completely de-stuffed (i.e. all of the goods unloaded). Customs officers than use a variety of tools to test of drugs, weapons, and other contraband. 
  2. Pier/Dockside examinations NOT AS BAD
    Customers officers open the container and do a visual inspection. They’ll lightly inspect the goods closest to the door and if they don’t like what they see, they may refer the container for an off-site examination. 
  3. Large scale imaging (LSI) examinations OK
    An X-ray is performed of the container to identify if an ‘intrusive examination’ is needed.

As mentioned, the container has been selected for a dockside examination. Assuming the customers officers do not find anything that raises any eyebrows, my hope is the container will be released within a day or two and with minimal charges (<$300). I’ll follow up with another post once I find out the results.

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The Key to Finding Good Products

iPhone cases- don’t do it!

One of the comments I get asked by friends, acquaintances, commenters on this blog, and so on, is ‘do you have any ideas for what products to import?’.  My answer is, of course, “Yes, I have an entire spreadsheet full of potential products, and no, I won’t share”.  Even if I was more benevolent, the chances are my little Excel spreadsheet would be of no use to the vast majority of people as it relates to one or two specific niches that most people care nothing about (nor have any desire to care anything about!).  So that right there is the key to finding successful products to import: you have to have a niche or two that you are an expert in.

One of the examples I routinely mention of a product to import is horse saddles. I know almost nothing about horse riding except I know that I am not alone in knowing almost nothing about horse riding. By virtue of that fact, that means someone who does know something about horse riding eliminates their competition drastically (I sure as hell won’t ever be their competition!). For the iPhone case importer, they will compete against almost any other potential importer who has ever had a great idea to import iPhone cases (and trust me- a lot of people have had that idea!).

Aside from eliminating your competition by concentrating on a niche, you also also have the opportunity to offer a lot more value to your customers.  Because I am an expert in my niche, I often find myself looking at existing products and thinking of how to make them better, even in the slightest way. I might find good complementary products to couple with the products or I might improve the documentation included with the item. In a couple of strokes of engineering genius, I’ve even been able to suggest different materials for some components to increase quality.  These are things I can only do because I know the products I import, inside and out.

One of the other benefits of focusing on a niche opposed to a mass market product is that the suppliers for these products will be on the smaller side. Such suppliers are normally open to smaller orders and you can actually become a client who matters to them. The number of suppliers will also be smaller, so it makes picking a supplier a lot less overwhelming. Aside from that, Scammers would rarely think to target horse saddle buyers in some Western Union money scam.

If you’re not an expert in a particular niche, you can likely become one in a short time. Visiting brick and mortar stores that either specialize in a niche you’re interested in or at least sell certain items in that niche is a great way to start. Magazines specializing in that niche give a lot of information regarding products in that niche and also contain advertisements which let you scope out your competition quickly.

Ultimately, if you’re able to become an expert in the products you’re importing, your customers will be happy and your bank account will be too.

 

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