Importing brand-name products from China. Shortcut or dead end?

Found a factory in China that makes a brand-name product and plan to buy directly from them? Read this article to find out why this is a terrible plan.

By Fredrik Grönkvist

Why bother with creating your own brand when you can free ride on one that’s already well established? Many naive importers assume that importing brand-name products from China is a short cut to success. It couldn’t be further away from the truth. In this article we explain why it’s not possible and how an attempt to import branded products can ruin your business.

You’re not going to outsmart Steve Jobs

We receive many enquiries every week from small businesses looking for anything from Apple iPhones and iPads to Sandisk Memory Sticks and brand-name apparel. While many of these products are manufactured in China, large corporations like Apple maintain tight grip on their supply chain.

Considering the amount of money these companies put into development and marketing, do you think it makes sense for them to allow third-party importers to purchase their products for rock bottom prices just to dump the prices? The factories which produce branded products are legally bound to only sell to the owners of the brand or licensed distributors. So, unless you are a licensed distributor (a costly and difficult venture) you can't access these products.

The same thing can also be said about Chinese brands such as Huawei or Xiaomi. Huawei is a market player in Europe and America. They have huge resources to manage distribution on their own. Xiaomi has yet to launch their products internationally. However, their products are manufactured for the Chinese market and thus not compliant with European and American product safety directives, such as CE and CPSIA.

“What about night shift production?”

There are plenty of stories about contract manufacturers of brand-name products running night shift production. The products are “essentially the same” as the original since they are produced in the very same factory. But that’s not the only benefit – the prices are so low that even a small order can generate a decent return on investment. Sounds too good to be true? It is! Let me ask you something. If tech giant Sony is struggling to make a worthwhile profit in the TV industry, why would you think you can? There’s no “night shift production” in China. It’s a fairy tale told by scammers to lure naive business owners. Besides, even if it  existed it wouldn’t be legal. Why? Because parallel importing is illegal in most developed markets.

There is only one way to buy brand-name products: purchase them from the official distributor in your country or market. However, if this comes as news to you, then I honestly doubt that you are ready for such a business venture. Companies such as Samsung and Apple are, and can afford to be, picky about who they do business with.

China retail prices are usually higher than in the US and Europe

Guess what, an iPhone 5S costs up to 25% more in China compared to the USA. Sounds strange? It’s not. The difference between rich and poor in China is huge. It doesn’t make sense for companies to cut their prices. Those who can afford it will buy regardless of price. Well, almost. Either way, the average Zhou won’t be able to afford an iPhone even if Apple lowered the price with one or two hundred dollars. In other words, forget about importing brand-name products from China.

Counterfeit products, payment frauds and confiscated cargo

Those who attempt to import brand-name products from China are in general very inexperienced. In other words, they are easy targets for scammers. Thus, it should not come as a surprise that this industry, if it can be called that, is completely infested with scammers. While some of them won’t hide the fact that they are trading with fake products, other claims to supply authentic brand name products for amazing prices.

There are only three possible outcomes when importing “brand-name” products. You either receive fake goods or the scammer takes your money and runs. Well, you might say receiving the fake goods is at least something. No, it is a big problem because it is illegal to import fake goods for a commercial purpose (as in actually selling them). 

Apart from violating IP laws, counterfeit items are NEVER compliant with many juridisctions' product regulations and directives. Considering that fake products are often manufactured by criminal syndicates, this should hardly come as a surprise. Non-compliance with product certification standards (i.e. CE, REACH and CPSIA) can be just as disastrous as getting caught importing fake products.

Ensuring compliance with regulations in your country or market is critical. Importing non-compliant items is illegal and may result in having your items refused entry by the customs authorities – or even major fines in case someone is injured or property is damaged. There are several reported incidents involving fake products, phone chargers in particular, causing serious injury or even death.

Create your own brand

I hope have convinced you to not even consider importing branded products from China. Forget about free riding on other companies' names. If you are serious about importing products from China you should create your own brand. While it’s no short cut, branding a product ads a ton of value. Branding a “Made in China” product is easy. Most suppliers can offer a custom logo or product packing layout for a low cost.

This article is re-published with permission from Frontier's content partner, ChinaImportal, an e-commerce platform that assists businesses looking to import products from China.

10 things to consider when planning your marketing strategy for Africa

By Tielman Nieuwoudt

When supply chain management in Africa is the topic of discussion, frequently used words include inefficiency, bottlenecks, bureaucracy, corruption, poor infrastructure and the occasional “chaos”. It is easy to fall into the trap of grouping all African countries into the same categories. The growth on the continent has sparked renewed interest in overcoming retail supply chain challenges. 

Below are 10 issues impacting retail supply chains in Africa:

Lead times - Importing products in Africa remains challenging and lead times could be anything from four to six months. The African continent has the most landlocked countries, further increasing lead times.

Outlet base - The numerous traditional trade outlets (e.g. spaza, dukas or souks) remain the biggest segment of the market and modern trade is still in the very early stages of development.

Fluid outlet base - The outlet base is fluid with new shops opening and closing. Seasonality also plays a part as some shops might stop selling ice cream and cold  beverages during the rainy season.  In addition, not all shops or selling points are permanent structures and some are roving hawkers.

Alternative channels - Beyond the traditional outlets, companies also need to understand alternative channels. For example, in Nigeria, “Table Tops” and the “Go-Slow” channels are important channels.  “Table Tops” are tables, set-up as temporary sales points to sell a limited number of stock keeping units (e.g. mobile phone carts). The “Go-Slow” channel or hawking channel, sells various types of merchandise that is normally easy to carry or transport (e.g. biscuits).

Markets -  Markets in Africa plays an important role. In some cases products flow from agents, who sell product directly to wholesalers based in  markets. For example in Lagos (e.g. Idumuta) and Addis Ababa (e.g. Mercato), markets remain a primary purchase channel for a number of product categories.

Moving away from trading - As African markets become more attractive, companies are moving away from trading (e.g. export agent and wholesale) and adopting a more organised Route-to-Market system, employing distributors to directly service the outlet base.

Route-to-Market considerations - Moving goods to a large fragmented outlet base is difficult and costly. Small groceries often have limited cash flow and  space to stock products. Finding the right model can take time and patience. Outlets are often  situated in high density and congested areas and companies are increasing looking at alternative distribution means, including micro distribution to reach these hard to reach areas.

Poor execution and stock out - What happens in the last 10 meters of retail supply chains is really important. In African markets, customers often experience stock outs because of poor planning and in-store execution. As small groceries have limited space and cash flow, they often require more frequent deliveries, in some cases daily.

Intermediaries - As small groceries have limited cash flow and space, they often require an intermediary, such as wholesaler, to break bulk. The wholesaler is often in close proximity to these outlets and provide a basket of goods, and in some cases credit.

Consumer satisfaction is availability - Retailers that sell undifferentiated products compete on the basis of product availability. Having the right product in the right place, at the right time (and frequency), with the right brand, at the right price, may be what really drives customer satisfaction.

10 issues to consider when planning logistics in Africa

By Tielman Nieuwoudt

The high cost of transport is one of the biggest challenges for almost every industry in Africa. It is estimated that the cost of transporting goods is 60-70% higher than the US and Europe.  In particular, landlocked countries such as Burundi, Rwanda and Uganda are very negatively impacted, as these countries depend on transit solutions in neighbouring Kenya and Tanzania. For example, a report by Trademark East Africa revealed that it takes up to 71 days to import goods to Burundi from any of the other East African Community member states. 

Below are a number of issues to consider when planning your outbound transportation:

Road network 

The transport systems of Africa vary significantly across region and countries.  For example, Chad has only 60 km of paved roads per million people, whereas countries like Algeria, Tunisia, Namibia and Botswana boast over 2000 km of paved roads for a similar population.  Organizations need to have a good understanding of the road network, including trade corridors.

Network design

When considering your network design in Africa, you also need to consider the absence of all-season roads in certain areas. In many countries, a number of cities and villages are isolated during the rainy season. During a recent network design project in Tanzania, these additional issues provided some challenges for our network design software.

Rail

The railway, a relatively inexpensive means of transportation, has also been neglected with very few rail extensions in most countries. However, the cost of rail freight is double the cost in Asia and one-and-a-half times as high as in Latin America (UNECA). However, rail remains an option in some countries, and there is increased investment in the rail network.

Road safety

Road traffic injuries are a major concern in Africa. Many organizations restrict any night travel, as roads are considered too dangerous.

Fuel

Prices vary significant across the continent. In some countries large volumes of fuel have been smuggled across the border. For example, in Benin is estimated that 80% of the fuel is smuggled across the border. In Nigeria the fuel price is about N140 ($0.89) a litre, where in Benin is retails for N250 ($1.59) at the pump, and N200 on the black market.

Third party logistics (3PL) 

When considering outsourcing your road transportation, it is important to determine where 3PL companies operate in the country.  3PLs often cover the major roads well, and will likely offer reasonable rates for these routes. However, these costs escalate the rougher the road, as transporters need to factor in truck maintenance for these rough roads.

Agents 

In some cases agents are used to find and negotiate on the behalf of the company. Often agents are in a better position to negotiate better rates than big multinational companies.

Collaboration 

Assess potential organizations that you can collaborate with to consolidate shipments. In African markets, volume tends to be low and cash flow is limited. Hence, more frequent deliveries are required, resulting in Less than Truckload (LTL).  For example, it is a common practice for distributors and wholesalers in African markets to consolidate shipments ( e.g. Lagos Fair Trade), ensure Full Truck Load (FTL) and in the process reduce distribution cost.

Backhauling 

Organizations also needs to review backhauling opportunities. There are real opportunities in smaller towns to negotiate favourable rates where trucks are backhauling. Backhaul is a return journey of a vehicle from its destination to its point of origin with a non-paying load. However, the concept is still foreign to many transporters and most will try to charge you the full amount.

Transportation maintenance 

You also need to understand the make of vehicles that have readily available spare parts and maintenance in the country. During a project in South Sudan, we identified a make of vehicles that could not be serviced in the country. The vehicles had to be driven back to Kenya for service as there were no spare parts available in the country. Finding qualified technicians also turned out to be a major challenge.  In a country that struggled for years with civil war, there are just not enough technicians in the country.

 This article is re-published with permission from Frontier's content partner, The Supply Chain Lab.

How to distribute agro products in Africa

Are you an agro products supplier looking to access dealers servicing small-scale farmers in Africa?

There is now more investment and innovation in supply chains, presenting great opportunities in this market segment.

There is increased interest in agriculture in Africa and in particular small holder farmers (SHF). SHF’s output remains low and is seen by many organisations to hold the key to the chronic food shortages in Africa.

There are some key challenges for suppliers looking to expand their footprint to access agro dealers servicing small holder farmers.

Infrastructure – Infrastructure remains a key challenge as distances are great in African upcountry areas. According to the Monitor MBS report, the population density of India is five times that of Kenya and Senegal. Some farmers have to travel in excess of 50 kilometers for purchases from agro dealers. While African road networks have improved considerably in some key markets (e.g. Tanzania and Ethiopia) they remain generally poor.

Transport - According to a World Bank study, transport cost in Africa could be as high as 40% of profits. Dealers are adamant that investment in transport is essential to running a successful agro dealer business. Unfortunately, investment in trucks tie up much needed capital that could be used for inventory.

Channels – Channels and markets are less structured and accessing agro dealers servicing SHF in these fragmented markets can be an expensive undertaking with low returns. Few companies have the product mix to penetrate these markets and forming meaningful collaborations with other organisations or companies can be difficult. As one company put it to me, “the margins and product range are just not there”. Often companies poorly understand the landscape of potential organisations and partners they can work with.

Agents – Working with agents to reach SHF farmers can be an expensive and frustrating undertaking. Agents often require intensive training and turnover remains high. Agents are also sometimes left to their own devices with little supervision, support and no clear sales targets. Often limited attention is given to agent and agro dealer selection and they fail due to poor support.

The right product mix and timing – Due to seasonality the product range will not stay constant and companies don’t stock the right product mix for the required season. As one agro dealer put it to me “when we are looking for pesticides they have herbicides”.

Inventory and finance – For agro dealers, it is constant battle to stock the “right product” and maintain the required working capital. The high cost of finance and access to capital remain one of the key challenges for agro dealers. During the low season, paying business overheads can be a challenge, and often agro dealers lack the required business planning to plan for these seasons. Farmers often have to travel great distances for banking services, tying up valuable time and resources.

Counterfeit products – Whether you are in Botswana or Burundi, counterfeit products are increasingly a big problem for farmers.

Scaling models – Often, Bottom of the Pyramid (BoP) Route-to-Market models are in the early stages of development. Scaling the models remains a key challenge. As many companies have learned, you can run perfect pilots with all the “bells and whistles” but scaling it profitably remains an Achilles heel for many organisations.

Demand – As many companies in the BoP segment have discovered, need for a product does not always translate into demand. Often limited Below the line (BLT) marketing support is provided.

How to overcome challenges

To overcome these challenges, companies and suppliers require an innovative Route-to-Market model and partnership to access agro dealers servicing SHF. The following options could be considered to overcome these challenges:

Value proposition – Companies have the potential to create a unique value proposition by providing transport, investment, training and other services. As one agro supplier framed it, “we need to understand the hooks to get agro dealers to support our business”. Understanding the “hooks” or value proposition should be key for any Route-to-Market design teams.

Collaboration – For companies, it is important to assess the landscape and identify companies and organisations they could potentially collaborate with. Farmers in rural communities want to buy at a “one-stop shop”. As previously mentioned, few companies have the required product mix to provide exclusive dealership. Companies can also aim to provide a bundle of goods and services. Potential services and products could include insurance, credit facilities and agro information such as market prices. Shared channels and a bundled approach to services and products can go a long way in reducing cost and making Route-to-Market models viable.

Understand the consumer – It is important to understand the consumer or farmer. Products need to be tailored for the market. Farmers are price sensitive and price points need to match the farmers’ cash flow. As we have also seen in the consumer goods segment, best in class companies provide the right package sizes (e.g. Unilever sachets) at an affordable price (Coca-Cola 200ml returnable glass). A good example in the agriculture sector is Bayer’s Green World Stores that provide smaller package sizes to agro dealers.

Order generation and transport – Companies can assist agro dealers with order generation activities. This could be through the role of an agent or centralized telesales. Orders and shipment from multiple agro dealers could be bundled together to save transport and transaction cost. As previously discussed, for many agro dealers in rural areas, transport remains one of the biggest expense items.

Inventory holding and depots – Agents are facing high transport cost and great distance to make purchases, additional distribution centers and micro depots are often required. These depots could be managed by 3rd parties. Companies can also opt for shared facilities with other companies or organizations to reduce cost.

Value chain and pricing - Many companies have poorly designed pricing strategies and agro dealers often find them competing against other hybrid distribution models such as supplier owned and controlled retail shops and wholesalers. Companies need to map out the value chain and assess the margin required for each partner in the value chain.

Agents and marketing activities - With the right training, incentive schemes and development, agent networks can become important sales components for any company hoping to reach agro dealers in rural communities. Farmers are highly risk adverse and agents can act as key opinion leaders (KOLs) and help create demand and educate dealers. As one agro dealer put it to me, “farmers often buy products when they are not sure what the product will do”. Agents can provide an important role during field days and introducing farmers to demo plots in their respective territories. They can also distribute information and provide below the line (BTL) marketing material such as posters and pricing decals. Finally, agents can sell value added services (e.g. crop spray) and products (e.g. micro-credit) that will increase their income and make the model more sustainable.

Shop fixture and merchandising - Companies can assist with shop fixtures such as racks and also provide value information about merchandising, including supporting merchandising material.

Finance and access to capital - Agro dealer networks can play a key role to assist agro dealers to access capital through banks or Micro Finance Institutions (MFIs). Companies can also assist with start-up cost, consignment stock and provide credit facilities. Companies should also explore collaborations with mobile phone companies to provide m-banking facilities.

Reducing counterfeit - By establishing a reputable supply chain through certification and training, companies can educate dealers about counterfeit products. , including to bar codes and registration (e.g. Nigeria’s NAFDAC registration). As we have seen from the pharmaceutical sector, technology can play a key role in addressing counterfeit (e.g. M-pedigree).

Selection and Training - Companies need a robust system to identify and select dealers ad agents. Understanding the complexity of the sale and determine how much training is required. For example, agro chemicals require specialised training to handle and store chemicals. As training is expensive, it is sometimes necessary to select and work with a limited number of agro dealers and/or agents. Companies and organization can also collaborate on training requirements, such as basic business skills and business planning, to reduce cost.

Many SHF supply chains are long and expensive, but there is increased investment and innovation happening in the SHF landscape. Collaboration remains key and even though the road to these fragmented markets is difficult, there is potential for great rewards.

This article is supplied by Frontier's content partner, The Supply Chain Lab. 

The Supply Chain Lab is is a group of supply chain improvement specialists with a focus on factory to village supply chain solutions in frontier and emerging markets. The Supply Chain Lab focuses on strategy, assessments and implementation.

How to manage micro distribution in emerging and frontier markets

There is increased interest in micro distributors and the potential they hold within an inclusive business model.

By Tielman Nieuwoudt

Well documented micro distribution models include the Coca-Cola MDC (Micro-distribution centre) in Africa and Unilever’s Shakti model in India. Micro distributors can be found in emerging and frontier markets where markets are fragmented and modern trade (e.g. Walmart, Tesco) is still in the very early stages of development. Below are a number of issues to consider when activating a micro distribution model.

Advantages of micro-distribution

Entrepreneurial spirit - A micro distribution system allows companies to tap into the entrepreneurial spirit that is so evident in many emerging markets. However, entrepreneurs must have a long term view to ensure the same consistent quality service is provided to customers.

Flexibility - Micro distributors tend to be more flexible in responding to customer needs. For example, they trade longer hours and can also provide weekend and night deliveries. They can act as a credit provider to low income customers. They “live and breathe the streets” of the communities they work in and are in a much better position to control accounts receivables.

Issues to consider prior to implementation 

Channel focus - A micro distribution model is not a one size fits all solution for all channels. Micro distributors generally focus on selected channels in traditional trade e.g. mom & pop shops, Dukas (East Africa) and Spazas (South Africa).

Complexity - Due to the complexity of sale and distribution, micro distributors will likely struggle to service modern trade effectively. It is best to reduce the complexity (e.g. reduced stock keeping units) for the micro distributor, including expected tasks and activities. It is important to understand what the micro distributor can successfully take care of in the supply chain.

Role definition - Companies needs to determine which aspects of the business they would like to control. For example, the Coca-Cola model separates order generation from delivery. This allows the company sales person to focus on more value adding activities (e.g. meeting customers, getting orders) and the micro distributor to focus on warehousing (neighbourhood warehousing) and distribution.

Supply chain impact - When implementing a micro distributors system, companies must assess what impact the distribution model will have on the rest of the supply chain. For example, compared to larger distributors, micro distributors will require smaller drops sizes that will impact the warehouse and transportation infrastructure and processes.

Shared infrastructure - Profit margin are normally thin and it is important to determine if there are any opportunities to share infrastructure (e.g. warehouse, transport) with other non competitive manufacturers and distributors. This can significantly reduce cost and make the distribution model viable.

Regulatory issues - Companies also need to assess the impact that regulatory issues will have on the micro distribution system. This could include business licenses, zoning and transport bands (e.g. restrictions on delivery trucks during peak hours).

Standardization - During the design phase, companies need to standardized processes and systems as it will reduce set-up and training costs. For micro distributors, distributor turnover (the number that close down) is high and it is important to evaluate how set-up and training costs could be reduced.

Support - Micro distributors also have limited resources (e.g. capital, employees) and normally require a bundled approach (e.g. training, finance, process design) to ensure their operations are sustainable and viable.

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Water producer's success story in Ghana

Voltic's successful distribution strategy primed it for investment from leading brewing and beverage company, SABMiller.

By Tielman Nieuwoudt

In the early 2000s, Voltic Ghana’s leading bottled water producer faced a common problem encountered by many beverage companies in emerging markets. How to sell water to the bottom of the pyramid (BoP) with hundreds of informal vendors already selling sachets at cut throat prices? The BoP water market held significant potential, but with low prices and little brand loyalty among consumers, it was viewed as a segment with high volume but with very low value. At the time, Voltic’s focus was concentrated on higher income Ghanaians servicing high-end outlets including hotels, bars and restaurants.

Rethink the business strategy

The company clearly had to rethink its business strategy in order to compete. Voltic realized that transporting water from centralized bottling facilities to the respective markets and high traffic areas was costly. Furthermore, with smaller package sizes the transportation cost per liter would increase, as sachets (or pouches) are not really known for stowability. Poor infrastructure and transport utilization in emerging markets likely compounded the problem. So, Voltic took a radical step to decentralize its bottling through more than a dozen franchisees and in the process, brought their water product closer to the market.

Selecting the right partners and sharing cost

Franchisees are local entrepreneurs with the ability to invest and grow the business. This includes bottling (including quality control) and distribution. In this partnership, Voltic pays for just over half the capital cost, with the rest of the costs covered by the entrepreneur. Voltic and the franchisees split the operating margin.

Branding and pricing

Voltic introduced a new brand called Cool Pac and priced it at a slight premium above the numerous informal competitors. In the BoP segment where water functions more as a commodity, Voltic changed all of that with a strong emphasis on the brand and quality. Even though Voltic outsourced bottling and distribution, the company maintains close control over all brand building activities.

Route-to-Market

The sachets are distributed using a network of informal street hawkers. Sachets (500ml) are sold to consumers for $0.03 per sachet  on a cash and carry basis. Today more than 10,000 street hawkers sell nearly 480,000 Cool Pac sachets daily.  Following Voltic’s success, in 2009 Voltic was acquired by SABMiller.