“Definitely I would be vigilant like in an initial screening process. I know most online sellers probably don't have the luxury of being able to see all of their factories but if they do, if they do go to Canton Fair, I highly recommend it. Just so you know what you're dealing with and if you're not comfortable with that, definitely have some backup plans.” – Gary Huang, founder of 80/20 Sourcing
One of the best perks of going to the Global Sources Summit is that I get to meet many people who are a wealth of knowledge for my business. One of these people is Gary Huang, founder of 80/20 Sourcing, a blog dedicated to show entrepreneurs how to source from China efficiently and cost-effectively. I heard him speak at Global Sources and I knew I just had to invite him to be a podcast guest so that I can share with you the valuable things I learned from him.
Gary lives in China and this episode was recorded via a call I made to him from California. The call quality suffered from the Chinese internet connection which, as you know, is not exactly zippy. Nevertheless, this episode is fully packed with great value for anyone who imports anything from China so it will be worth powering through the bad call quality to get to the good stuff.
Gary's topic at the Global Sources Summit is about supplier negotiation. There are so many things you can negotiate with your supplier aside from price of goods, and we talk about that a little bit in this episode. As a bonus, Gary has been awesome to give EcomCrew listeners access to his Negotiations pack, which includes the Online Seller's Guide to Negotiating with Suppliers e-book, a negotiations cheatsheet, and a “Secrets of Successful Sourcing” Masterclass video. You can get them all here for FREE.
Here are the highlights of our conversation:
- Gary's ecommerce background and why he started 80/20 Sourcing
- Why he moved to China and what it's like living in the midst of pollution
- His direct insight on the ongoing factory shutdowns
- The positive and negative effects of stricter Chinese environmental laws
- How to deal with the shutdowns as an Amazon seller
- Why visiting your factory or doing a third party inspection is very important
- Direction of Chinese manufacturing
- Is it a good idea to start sourcing from other countries such as India or Vietnam?
- Outlook and best practices for sourcing for 2018
We hope you find this episode useful, as I did when I listened to Gary during his Global Sources talk. Don't forget to go to 8020sourcing.com/ecomcrew to get you FREE Negotiations pack.
As always, thanks for listening to this episode. We'd love to have your feedback at iTunes and if you'd like to reach us, you can do so at firstname.lastname@example.org. Until next episode, happy selling!
Full Audio Transcript
Mike: This is Mike, and welcome to episode number 98 of the EcomCrew podcast. We’re so close to that elusive 100. I cannot wait to do episode 100. It's pretty crazy how far we've come. Now today though, I have Gary from 8020sourcing.com on the podcast. Gary is somebody that I met at Global Sources Summit.
And one of the main reasons I go to these things now is just to meet other great speakers, and I really enjoyed his talk. And I was like, Garry can you please come on and kind of replicate that at a shortened version on our podcast, and he was happy to do so. So go to EcomCrew.com/98 for the show notes for this episode.
Gary has a couple value bombs including a free lead magnet to download some of the information he's talking about in this podcast and some other stuff. So EcomCrew.com/98, that will get you to the show notes. You can leave comments and download those links. In the meantime, I hope you guys really enjoy this interview. I do apologize, the quality of this is a lot lower than we typically are able to put out, but that's because Gary lives in the trenches in China.
And anybody that's been in China, you understand the internet bandwidth there, getting Skype calls to the US is kind of brutal. So he woke up super early before it becomes even worse, and he was able to at least get this recorded for us with me. And if you just power through the lower quality, turn up the volume a little bit, the substance of this interview is worth the fight of listening to some of the lower quality, right? So definitely take a listen if you import anything from Asia.
This is definitely worth your time, and or if you're thinking of importing anything, Gary goes over just the kind of the current Chinese environment including literally the environment because we talk about the EPA. But the whole environment over in China from other Chinese sellers to factories themselves to all kinds of things like Chinese New Year and other things like that. So take a listen to the episode, we’ll see you on the other side, and talk to you soon.
Gary: Definitely I would be vigilant like in an initial screening process. I know most online sellers probably don't have the luxury of being able to see all of their factories. But if they do, if they go to Canton Fair, I highly recommend it, just so you know what you're dealing with, and if you're not comfortable with that, definitely have some backup plans.
Mike: Hey Gary, how’s it going man?
Gary: Hey mike, it’s going well, how about yourself?
Mike: Good, good. It's good to have you on the podcast. We met at Global Sources over in Hong Kong a few weeks ago as we were recording this. By the time that it goes out, it will be a couple of months removed. But how did you enjoy the Global Sources Fair?
Gary: Oh yeah, I think that the Global Sources Fair and Summit is excellent. I mean just being able to meet a lot of top Amazon sellers, really smart guys like you and the team at EcomCrew, you and Dave. I always learn a lot when I go, and it is great to talk to other Amazon sellers as well. I mean it's like one of my highlights of the year.
Mike: Yeah, I mean I think I've kind of figured out my backdoor tactic for speaking at these things now is to get more podcast guests. So it was good meeting you there, and as soon as I heard your talk, I'm like, man I got to get this guy on the podcast. He's really smart with his stuff.
Gary: Well, thank you. I'm really honored to be on EcomCrew’s podcast. And I was actually talking with a friend last night; he's an Amazon seller as well. He’s like, oh man, that's awesome. He said like you’re a rockstar now, you’re on EcomCrew. So I'm just happy to be a part of the big show man.
Mike: There’s no worries. So, just a couple of quick things just to our listeners. Gary is in Shanghai, I'm in California, so that the call quality on this isn't as good as normal. But I guess maybe just turn things up a little bit, I can promise you Gary is going to have enough good stuff to kind of fight through the call quality, because like I said, I listened to his talk and it was A plus.
We talked about several things before hand here. I have a bunch of questions I want to ask Gary. But I think that you guys are going to want to stick through the poor call quality. I mean it's something I dealt with while I was over in China for the last month. And I'm glad I'm over here in the US, and as soon as I hang up, I’ll be back to normal Internet again.
Gary: Yeah. I mean it's something that’s about doing business in China, like different rules, but doing our best.
Mike: Yeah, I understand. So just kind of hitting things off the top here, let's take maybe 30 seconds to a minute to just tell people a little bit about yourself, what you do. I know you run the blog over 8020sourcing.com. And before our call, I had a chance to go through that, and there's some really good content over there guys. I would definitely recommend checking that out. But maybe besides just 8020 Sourcing, tell people a little bit about your background, and how you ended up in China, and you're obviously an Amazon seller as well and all that good stuff.
Gary: Yeah definitely. So I'm actually from Los Angeles, born and raised in LA. I grew up there. And I first got my feet wet with ecommerce back in 2004. I was working at Google, and I was a contractor in their AdWords department. And then that time it was like very early, and I starting seeing the bloom of a lot of small businesses, leveraging AdWords on their own websites. So after I did that job, I started up my own ecommerce store on eBay at that time. This was about 04/05, and eBay was like the Amazon of today. It was like the 800 pound gorilla, it was doing really well, and then I was selling in a very small niche in women's shoes.
So that's how I first got my feet wet. So I had a eBay store, I was a power seller, I went to eBay Live, and that was kind of like with the Amazon conferences now. There was a lot of excitement and meeting people. But over time, things changed. In 2008, it was the financial crisis had hit, and then I really wanted to make a move.
So I decided to move out to Shanghai in 2008. And then that's when I found a job with a small consulting firm in helping foreign clients source from China. So I was very fortunate growing up–my family, second generation–I’m the son of immigrant grandparents from China. So I was very fortunate that my grandma, she was a great lady, but some of you may have heard of tiger mom. My mom was really nice, but I had tiger grandma. So it was really tough on me growing up.
So she would really force me to study Chinese after school. I mean I never went to Chinese school because a lot of my friends did, that never worked. But she really grilled Chinese like Mandarin at home. So I was very–that time I was unhappy, it was like more homework. But now I'm very thankful because I’m able to–I’m fluent in Mandarin Chinese. And then I was able to use that when I was sourcing for clients from Brazil, and managed multi million dollars worth in campaigns.
And then I could see many factories, I probably visited hundreds of factories. I’ve seen the good, the bad, and the ugly. So I really tried to–I learned a lot. And then a few years ago, I started 80/20 Sourcing. I really thought about my life, next steps and I was getting married. I kind of hit a ceiling with my old job, and then that’s when I decided to start up 80/20 Sourcing because I felt like there was a lot of misunderstandings about doing business in China, sourcing. Some people say it's like a black box, there's a lot of unknowns.
On the other side, I've been on the ground in China, I can kind of understand the mentality and the business, the way things operate. I don't think that a lot of it is like intentionally trying to deceive people. A lot of it is just cultural or language miscommunication. So in a nutshell, that's why I started 80/20 Sourcing. And then I really wanted to get back to my e-commerce background before I moved to China, and that's when I started selling on Amazon again. So, in a nutshell, that's my background.
Mike: Cool excellent. Well, that definitely explains how the blog kind of came about. And obviously when you did your talk at Global Sources Summit, just kind of the stuff you were talking about there. And actually it's a great segue into some of the questions I want to ask you, because one of the things that's really concerning me right now is the lead article on your blog, just these EPA shutdowns in China, which is having an adverse effect on pricing.
I mean we're hearing a lot of material costs going up because of all this. And I'd love to get your first hand perspective as someone that's there. I actually just–I was reading an article that living in Beijing is the equivalent of smoking 17 cigarettes a day, just breathing the air outside. So it's definitely a problem. But I mean someone that's there on the ground, that's living in the pollution, that is also feeling the pressure on a pricing perspective, because of this, what you're seeing.
Gary: Right. I mean this is a really hot topic that we've been talking about recently. I think on the whole, this is a good thing for China, because obviously the air quality in Beijing is legendary. Like what you said with like smoking toxic cigarettes. I mean I have a lot of friends here in Shanghai, they just try to stay away from Beijing if they can just because of that.
So I think if we look at the big picture, if we look at the Communist Party, the government, some of their important measures, like one thing is anti corruption, but number two is anti pollution. And we saw that coming straight down from the top party leaders. So this time I like to say the tiger has teeth. It's not just paying lip service, like this time we've seen over 16,000 factories shut down across China because of these pollution violations.
And this time on the local level, we're seeing a lot of these factory audits, and daily fines imposed, and in severe cases, people are getting put in prison because of these violations. So the first thing is this time the tiger has teeth, it’s serious, it's not just paying lip service. And then from the sourcing perspective, if you're an Amazon seller, it's really hard to know what's going on, because there's a gap in the communications.
Oftentimes factories may not tell you ahead of time, and oftentimes they don't even know because there's also a gap in communications on the China side. So what I suggest is being very proactive, talking to your factories about these concerns. And then just asking them, has your factory been affected, has your factory been audited, because some of them depending on the different regions in China, some of them have already been audited.
For example one of the suppliers that I've worked with in Jiujiang in the kitchen category, they've been audited, and there was about a one week inspection period, and fortunately they passed. So it was just a one week disruption. But this was a good case, but the other parts of China it's like a gradual rollout. So I would suggest that you be very proactive checking with your suppliers.
And then on the pricing front, this obviously is causing prices to go up. One of the reasons is because a lot of the low cost like really polluting factories, they're getting shut down. So there is a consolidation of these factories. So there is actually fewer factories, and then the ones that can abide by the new pollution rules, they operate at a higher cost just because they have better pollution control equipment.
They may have more — they have to pay higher wages for better skilled labor for people to operate this type of equipment. So the costs are going up in terms of pricing. So that's something that will affect a lot of people and online selling community.
Mike: Yeah, I guess it's just cheaper to dump the sludge right into the river than collect it and do something better with it.
Gary: Yeah. I mean it's a huge problem. I mean this year anecdotally, it's like so far the sky is a bit bluer than before. So I'm pretty happy about that. I've only had to turn on the air purifier once so far the past couple of months. I mean before in the wintertime, we just had it on, and run it every day. I mean, this is just like that huge haze. But the air is getting better, and they’re moving in the right direction.
Mike: So I mean in addition to what you were talking about, you’re talking to your factories and getting them audited. I've also been to personally to a lot of factories, and I'm kind of looking out for that stuff. I'm looking for factories that at least have an appearance of they're doing things the right way. You can kind of tell, certain factories have a look and feel just–like I’d say that they are close to like OSHA standards in the United States.
They can almost past OSHA standards versus other ones where you just like man, this is really–it looks really squirrely. I mean have you gone as far as to proactively move manufacturers if you're seeing stuff that just looks like it's going to eventually be a problem?
Gary: Yeah, that’s actually in the initial supplier vetting process, I can use an example. In my previous job, I was helping our Brazilian clients source oil seals. So these are like little components that go in a car engine, there's a rubber part and there's a metal part. And then we did like a road show across China. We probably visited about 20 factories, and then they ranged from like really high tech, very clean factories with a very organized production line.
They had all the ISO certification, all the international standards to the other end of the spectrum, and literally it was like what you said. It was like a sad condition, it was like a very small warehouse, and they were just like exhaust fumes, like just literally in the whole building. And people, like the workers didn't have the right protection. And I mean like something like that, it's like it's pretty obvious that they wouldn't pass. I mean granted this was some time ago.
But definitely I would be vigilant like in an initial screening process. I know most online sellers probably don't have the luxury of being able to see all of their factories. But if they do, if they go to Canton Fair, I highly recommend it. Just so you know what you're dealing with, and if you're not comfortable with that, definitely have some backup plans.
Mike: Yeah, you can use something like AsiaInspection even to go out there and do a factory tour for you, a factory audit. That's something that we've done in the past when we haven't been able to get out there in person. And we just got back from the Canton Fair, and did a couple of factory tours while were there. I mean this stuff is important if you have the ability. But like you said, not everyone has the luxury, not all the factories we wanted to visit were in Guangzhou or Shenzhen area where we were able to spend time. So if they were up in Ningbo or Shanghai or Wuhan or something, we just weren't able to go visit.
So even using something like AsiaInspection just to have them go out and make sure that these factories are legitimate, because the worst thing–I mean it's hard to find a factory, right? I mean it's hard to get a good relationship with a factory, and the worst thing you could do was like be three, four, or five orders in and then all of a sudden they get shut down. Especially if you have an order that's midway through production, and you can just put yourself in a really big bind.
Gary: Right, yeah that's really smart what you guys are doing, like hiring a third party agency like AsiaInspection. We use that as well because we don't–like we can't reach everywhere. And sometimes you don't want to be penny wise pound foolish. I mean just make sure at least you get some sort of verification just to make sure you know what you're dealing with.
And then another way if for some reason you can't afford to have to send someone into all of your factories especially in the initial screening process. What I like to do is I like to ask a question, I ask if they have any certifications from Wal-Mart, from Disney, or from one of large multinational corporations that does a lot of sourcing from China. The reason is because these corporations, they have their own audit team, they have their own standards.
And if there's any obvious violations with like emergency exit or worker safety, or even like child labor and stuff like that, they've already been audited and approved. So that would help you gain at least some confidence that they meet certain standards that would be appropriate for the US or for the EU.
Mike: Yeah, that's actually a really, really good tip. Yes, so I guess switching gears just a little bit here. I know we're talking about sourcing from China, but like a lot of my friends and people in the communities that I kind of roll in are starting to look at other countries like India, Vietnam, Cambodia, places like this. I'm curious, I don't know if this is anything you have an experience with. Have you moved any sourcing to those countries, or know other people that have, and is that a good idea even?
Gary: Yeah, I think that again on a macro level, China manufacturing is actually trying to move up the value ladder. So what does that mean? That means that China right now is the largest purchaser of automation and robot technology. So if you think of like an Apple contract manufacturer, like a Foxconn, they have really like high end state of the art technology and equipment, and then a lot of the car manufacturers.
If you go to one of their factories, it's really like it's dead silent. It's just like robotic cranes and arms and operations, and there's like one operator or virtually none. I feel like that's the direction that China wants to go to, and that it's moving away from a lot of the really cheap factory like commodities, and is trying to move up the value ladder. But at the same time manufacturing in China, there is like 300 million people or 300 million jobs. So it's literally, it's too big to fail. So China can't afford to let everything shut down.
So to get back to your question, I feel like China is willing to let some of the low cost, like really commodity products that are heavily polluting, I feel – I’m seeing some of that go to India, and going to Vietnam. So for example I know some people that are sourcing textiles previously in China, but their factories are getting shut down in Shandong, so they move to India.
And this also it is a smart strategy because Chinese New Year is coming up soon. And then obviously all of China is going to get shut down for, officially it's going to be a week, but in reality it's going to be about a month. So if you do have another secondary supplier in India, they actually can fill that gap so that your factory and your order isn't delayed until it ships to you. So it is a smart idea, but it's not that easy to find suppliers in India and Vietnam, because there aren’t that many tools available such as in Alibaba that can have pretty good coverage in China.
Mike: Or Canton Fair.
Gary: Yes, the Canton Fair, although there are trade fairs in those countries. Yeah there are trade fairs. But the other thing is I'm seeing like a lot of excitement and chatter about Vietnam, but I've been talking to people, trying to source from Vietnam, but just the experience level, and the worker productivity level, and also like the technology level, it's not on par with China yet. I mean prices may be lower, but like not to get too in-depth, but China has a whole supply chain.
So you can get like the raw materials, you can get all the assembly done; you can get the packaging done. Everything can be done locally in China like probably in the same province like in Dongguan. But if you tried to source the same product from Vietnam, a lot of times, you would literally have to ship the raw materials from China to Vietnam. That's like another couple of weeks on the boat and more cost and then training the workers to do that. So it's not just going to be faster, it’s more costs involved if people are going to these countries.
Mike: Interesting, yeah that makes a lot of sense. So shipping here is a little bit here. I mean the thing that scared the living crap out of me back in April when I went to the Global Sources Summit for the first time, and it came up again this time, and it's for real. These Chinese factories that are basically descending directly on Amazon, and cutting out the middleman, and cutting out all the middlemen, right? Because that's kind of what we do as a private label seller, we cut out one of the middlemen.
But they're cutting us and going directly and even taking some of the exact products that we've worked to developing collaboration and sticking them on Amazon directly as a seller or as a manufacturer and their cost of goods are going to be way lower than ours. So it's a hell of a competitive advantage. I'm wondering how much you're seeing this, and obviously I know that you are seeing it and what you're doing to combat that?
Gary: Right, yeah this is a big fear. I mean last year, I was looking for some products in the kitchen category. I went to a trade show here in Shanghai, and then I had — what I do is I like to save the images of the product in my phone right? And then so I was going from one booth to another, and basically I saw a booth, a factory. And then I was looking at their product really closely, and it was the same brand that was being offered on Amazon. It was the same Chinese brand.
I'm like, oh man, this — and then I showed them the picture. I asked them, is this your product? And she said, yes this is our product. And I'm like, oh, so you’re selling on Amazon? She said, oh yes, we’re selling on Amazon. And then I'm like there's no way I can compete against them. How can I compete against them if the factory is directly selling on Amazon, and the exact 100% same product, right?
So obviously by presenting like that, I can’t compete against that. But I think this is more, at least from what I'm seeing in Shanghai, this is more the exception than the norm. The reason is because it is not that easy one, for a factory to shift from a manufacturing and export model to a business model to foreign like retail B to C model because obviously there's a language barrier. There is in terms of marketing, there's a lot of things to learn to market to the US market. It’s different from China.
I mean I feel like most Chinese sellers they try to just compete on price, you get like price wars. So that's why. And then the other obstacle is then the mindset of a Chinese factory owner, because traditionally a factory – they’re are not willing to invest money in keeping inventory, or keeping product because that's risky to them, because what if they can't sell it. So if they do sell on Amazon, it requires a shift in risk tolerance.
And then many of the factory owners, they’re older, they’re in their mid late 50s. And then they're actually looking not to take on like these risky endeavors, at least from my perspective. So many of these factories may have their fear about — I'm not sure they have the appetite for the risk to do this, because what if send a product there and doesn't sell, then what are they going to do? Because traditionally there, they don't do this type of business model.
And then the third thing is some people forget about this, but China’s e-commerce marketplace that is the biggest in the world. I mean there's like double eleven. It's like November 11; it's like the biggest shopping day in the world. And then like the sales on that one day, it's like more than Black Friday and Cyber Monday combined. So just like in China’s factories’ backyard. There's a huge opportunity, and I feel like there's a lower barrier to entry.
So I feel like a lot of factories we considered this now that they’ve seen it. They have their own like Taobao store in a side room. It's a lot easier for them to sell locally in China than to the US. I'm not saying that I'm not afraid, but I'm just saying that this is what I'm seeing. And it's not that easy for them to go directly on Amazon.
Mike: Yeah and it makes a lot of sense. And I mean at the same time, I'm still — it doesn't take a lot of factories in your space to disrupt your market, right? For me, the thing that we've been really focusing on is trying not to develop what I call me too products. I mean if you're talking about like a kitchen category for instance, the one that always comes up as a joke in these conferences is the garlic press. So like not developing a garlic press or a spatula, or just something that everyone else is doing.
And then trying to improve or innovate in a way that the Chinese factories aren't going to do. Like they are capable of doing it, but you know they're not going to do it just because of the custom. And also like you said, I mean the marketing angle I think is huge. I mean we can provide way better customer service which goes a long way to having a five star product at the end of the day, versus a four and a half star product.
And also just developing like raging loyal fans that will do word of mouth advertising for you, and building a community. So like when you do launch new products, you have a bunch of people that will just blindly go buy your stuff and give you a leg up and a boost that no one else can touch. So that's kind of the angle that we've been doing to stay ahead of that curve I guess.
Gary: Yeah, I agree 100%. I mean the fact that you're on the ground, that you know your market, you know like their pain points, and you can market them or market to them with — like I know that you have like a really amazing funnel and with your email campaigns. I highly doubt a Chinese factory has like the team or the wherewithal to do something like that. So definitely you can be more competitive that way.
Mike: Yeah, so it's crazy. It's that time of the year again already — I mean it's crazy how fast 2017 went by. Now that it's 2018, I'm curious to get your take. I love doing this kind of stuff this time of the year. What do you see in 2018 as far as the outlook of sourcing in China, are there any like best practices you can be thinking of in 2018 that might be a little bit different, or some type of trends to kind of hit that stuff for the last couple of minutes here?
Gary: Right, yeah definitely if I were to look into my little owl for 2018, the pollution control like the China EPA, they are starting to clamp down. So what we saw in 2017, I don't think that's the end. I think we're going to see more of these changes. So definitely be vigilant, communicate with your factories, try to anticipate these changes. I'm starting to see also the prices, the price increases. Some of the people in the audience may have seen higher prices already.
But traditionally these prices creep up after Chinese New Year. It’s just kind of the mentality in China, whether it's a restaurant, like reopening or hiring a new team and adjusting their prices. Same thing goes with sourcing and manufacturing. So I would just go back to your cost breakdown and your margins, and then just see how much of cost increase you can tolerate. But just expect higher prices after Chinese New Year.
And then the third thing is if you're not negotiating already, definitely learn to negotiate, because a lot of times I see a lot of online sellers, they leave money on the table. They could have been negotiating for a better price. But besides that, there's other things you can do. You can negotiate for better payment terms. Rather than paying 30/70, you can pay later, and that really helps free up your cash flow.
So there's actually a lot of stuff that people can negotiate for besides just price, packaging, deliberately trying to even holding stock in a factory, having to cut down on some of your local inventory costs. And then, I actually wrote a guide to negotiating with Chinese suppliers for online sellers, and then I'm happy to offer that free as a free PDF to the EcomCrew audience if you’re interested.
Mike: Yeah definitely. We talked about that before recording. So if you guys go to 8020sourcing.com/EcomCrew, Gary will have that free PDF up there. Again I watched his presentation. The stuff he's already talked about here is highly valuable. So getting more free info is definitely always good stuff, and I definitely recommend doing that. So again, we'll put the link in the show notes as well, but 8020sourcing.com/EcomCrew.
So that has brought us to the end of our journey my friend. I really appreciate you coming on the episode. We've done well keeping it right at the 30 minute mark. So I definitely appreciate your time today, and hopefully I'll see you back in Hong Kong at the next Global Sources Summit.
Gary: Absolutely. Thanks a lot Mike, and hopefully it's been helpful to you guys at EcomCrew. And then wishing everybody a great 2018.
Mike: Thanks so much man, have a good one.
Gary: Okay, take care, bye.
Mike: And that’s a wrap. I want to thank Gary for coming on the podcast today, and doing that interview. Again I apologize for the recording quality, just one of those things you have to deal with when talking to somebody over in Asia. But the substance I think more than made up for it. If you go to EcomCrew.com/98, you can find all the resources that Gary was talking about including his website 8020sourcing.com, and the free download lead magnet that he has for everybody. I would definitely check that out, EcomCrew.com/98 for the show notes. Until next episode everybody, happy selling, and we will talk to you then.