10 Most Common Mistakes Made by Foreign Buyers in China – Mistake 2: Not knowing the “all-in” price

By on January 6, 2012 in Exporting to China

Second in a 10 part series of common mistakes made by foreign buyers in China

Mistake 2: Not knowing the all-in cost of the “China price” 

There is a lot of additional work to do on top of sourcing the product. Here are the key costs that make up the all-in China price:

Investment into Tooling

You more than likely will have to arrange for the factory to make tooling at your expense. This is especially common for customised products where a specific mould is needed to ensure the design, logo, etc.  Determine the life of a tool and amortize the cost into your piece price.

Shipping and Logistics

Know the all-in price of shipping rates. Make sure that you understand the box quantities and what is a safe or optimum quantity that can be packed into a container. You also need to understand the terms, for example, CIF Toronto does not mean delivered to your door in Kitchener so determine the cost of this trip. Small trips add up.

Exchange Rate Volatility

The fluctuation of currency rates can lead to the product price changing after the initial agreement. Try to buy in RMB to lock in the price.  If you do this, and depending on the dollar volume, you should try to hedge the currency to minimize the risk. Also be aware the Chinese Yuan (renminbi) is not a treaded currency so the rate in China and the rate in Hong Kong can and will vary.

Final Inspection

This is an area where if you forgo your right of final inspection, have a bad outcome and a costly one. If you cannot do the final inspection yourself, arrange for a qualified and reputable 3rd party source to do this for you. Understand the costs and add it into the price as it is a cost of doing business and not an area to be cut to lower costs.

Factory visits – Emergency or otherwise

If you are doing any decent volume of transactions in China, you need to factor your total travel costs to there divided by the total value of the China Business. You should add this percentage to your costs of product from China and this will give you a true picture of what it costs to buy product in China.

About Tony Gostling

Tony Gostling is the Director - Member Services for the Canada China Business Council, which is the premier facilitator for bilateral trade and investment between Canada and China.Since 1996, Tony has been heavily involved in Asian business activities. Prior to joining CCBC, Tony spent nine years working in China as the President and Chief Representative of a trading company with offices in Shanghai and Shenyang, which supplied “made in China” OEM components, mainly for the railroad and transportation industry, to their customers in the US and Canada. Tony has also been a manufacturer’s agent and a sourcing and business consultant and spent many years in procurement management at Westinghouse Power Transformer prior to their merger with GE in the mid 80’s.Tony, who speaks Mandarin Chinese, has spent most of his career in global procurement and supply chain management. He is very familiar with business startup and operational practices in China and the common problems associated with operating in an emerging economic power. Tony and his wife, Hua, make their home in Guelph but still maintain a residence in Hua’s hometown of Shenyang, China. Tony, who grew up in Chatham, has always had a great interest in sports and played lacrosse for the Kitchener Braves back in the early 70’s and is in the Wallaceburg Sports Hall of Fame as a lacrosse coach.
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