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.

Five top investment opportunities in Ghana

Ghana one of Africa's high-growth markets. Real GDP is projected to grow on average 5.16% per annum over the next five years. The West African country has maintained positive FDI trends in the recent past and has immense investment and business opportunities.

Power generation and supply

Ghana’s power sector has close to 2,500MW of installed capacity. Demand could exceed 5,000MW by 2016, driven by strong economic and industrial growth, population increases and government’s goal to be a major energy exporter into the West Africa Power Pool. Independent power producers are contributing to the current capacity, and are important in government’s bid to achieve its energy objectives.

Demand for energy is growing at a rate of 10% to 15 % yearly, but supply is not catching up. The government is consequently diversifying  the energy mix to ensure security, and is reportedly looking for investment into renewable energy projects to the tune of US$1-billion in the next eight years.

The renewable energy potential lies in wind, solar and hydro resources. More than 50% of installed capacity is currently provided by the large Akosombo and Kpong hydropower projects. Biomass also makes a significant contribution to the energy mix. West Africa’s second-biggest economy plans to increase the contribution of wind and solar power to 10% of the capacity by 2020 and enacted a Renewable Energy Law to enable the investment goals. 

It is estimated that, about US$9-billion is required in the short-term to finance the numerous initiatives in the energy sector, including oil and gas activities, which alone require over US$5.5-billion.

Companies can find a number of opportunities in generation, transmission and distribution of electricity, and supply of street lighting, energy-monitoring equipment to meet increasing demand for power monitoring and tariff analysis, and solar energy products and systems to off-grid communities.

A few foreign companies are planning big power generation projects in the country.

UK-based renewable energy investment firm, Blue Energy, announced it would construct a photovoltaic (PV) solar power plant in Ghana at a cost of US$400-million. Installation of more than 630,000 solar PV modules will begin by the end of 2013, and electricity generation will start early next year, with sections coming on stream as they are completed.  Blue Energy expects to power 100,000 homes when the plant reaches full capacity by October 2015, and claims it will be Africa’s biggest PV solar power plant.

Another recent big investor in Ghana’s solar energy space is Canadian solar company Siginik Energy Ltd, which plans to build a 50MW ground-mounted solar power installation in northern Ghana. It signed a power purchase agreement worth over $280 million, for 25 years, with the Electricity Company of Ghana Ltd., Ghana’s second largest utility.

Meanwhile Chinese Energy Company, Shenzhen Energy, is proposing to build a 700 megawatts coal-fired power plant that will cost US$700-million. Shenzhen, through its local unit Asgoli Power, entered Ghana in 2006 to build a 200MW plant that provides affordable energy to consumers.

Mining

With its political and social stability and strong mining infrastructure and services, gold-rich Ghana is a high-class target for mining investment.  As one of the most important producer nations for the global market – it is Africa’s second-largest gold producer, behind South Africa – mining is a major source of revenue for Ghana.

The country has diverse mineral resources, but the revenue balance is skewed towards gold. 14 of the 16 major mining companies operating in the country are extracting gold. Gold fields, AngloGold Ashanti, Golden Star and Newmont account for more than three-quarters of gold production. Other resources that are currently being mined include diamonds, manganese and bauxite. Deposit of Kaolin, silicon, limestone and other minerals exists.  The government is promoting the potential in these other areas with the hope of drawing interest from investors.

Gold prices soared in 2012, attracting attention to Ghana’s  deposits from big and small companies. This has also significantly increased illegal mining, which is now encroaching on the territories licensed to the majors, and using harmful methods to the environment.  

The falling prices of gold  could shift focus to other resources like limestone and bauxite. Limestone production would be potentially lucrative – the rising demand for clinker by the manufacturing and mining sectors (one million metric tons per year) could provide a ripe market locally and internationally.

Investment opportunities in the sector include production of industrial minerals for local and international markets, processing, provision of support services, e.g. contract drilling, contract mining, laboratories and geological services, manufacturing plants to produce key inputs and machinery for the mining industry.

Real estate and construction

Ghana’s growing population, buoyant economy and favourable investment environment make its real estate market increasingly dynamic. In spite of complicated issues over local lending and land ownership, demand for housing spans the entire spectrum of the population, from wealthy Ghanaians and a growing number of expatriates through a rising middle class to lower-income groups.

The current housing market boom began in the early 1990s when the financial sector was liberalised, and the sector’s expansion has since gone hand-in-hand with that of the economy as a whole.  With Ghana as one of the fastest-growing countries in the world, investors and authorities alike are realising the potential of the nation’s real estate sector.

Ghana has an encouraging framework for real estate investment, with freely-transferrable capital and profits, but projects have generally concentrated towards the middle and the top of the market, where margins are bigger and demand has remained relatively stable. As a result, a shortage of affordable housing is one of the biggest challenges facing the country. While the gap between supply and demand is most acute at the bottom of the income scale, there is also rising demand in the middle- and high-income segments, in which local and international developers are showing increasing interest.

One of the most significant drags on residential real estate growth has been the difficulty of obtaining a mortgage. But there is a growing willingness among banks and other lenders to provide home loans, whether through traditional mortgage structures or other forms of periodical payment.

Agriculture

Despite the changing demographics due to increasing urbanisation and industrialisation, agriculture still represents one of the largest GDP contributors in Ghana. The country is a major producer of a wide variety of cash and stable crops, including cocoa (second largest cocoa-growing country in the world), palm oil, maize, rice and cassava. Though maize and rice are primary staple crops, domestic demand has outpaced local supply in the past decade. Increasing production is a key part of the government’s long-term development plan.

A number of government- and private sector-led programmes could help boost production in the coming years. The World Bank, IMF and several pan-African NGOs are actively involved in the sector. The government continually engages major financiers to secure easier access to credit for farmers, which should decrease the amount of funding needed from international aid organisations and government sources.

The country is a major exporter of fruit and vegetables to EU markets. Other leading processed agricultural export products include tuna, cut fresh pineapples and tomato paste.

There are many opportunities for investors to get involved in Ghana’s agriculture sector such as commercial farming of crops and flowers, processing of produce and dairy products, supply of inputs, equipment, agrochemicals, veterinary drugs and animal feed, manufacturing of agri-chemicals packaging materials, cold chain systems and factory building and irrigation technology. Other opportunities include  capacity building for management and market-oriented enterprises, market intelligence research and development of agricultural finance and insurance. 

Insurance

The insurance sector in Ghana has grown rapidly in recent years. The fast growth and low entrance requirements over the past decade have resulted in a top-heavy sector, dominated by a handful of large firms and brokers. Competition is fierce, with over 40 insurance companies and 42 insurance brokerages. Corporates bring in the most business firms, but Ghana’s rising middle class is expected to boost the retail side. As new segments open up and the market continues to mature, smaller, more undercapitalised insurance companies are merging with competitors. 

The challenges facing the industry include under-pricing of policies and bad debts, which has badly affected insurance companies, forcing them to make significant underwriting losses.

The opportunities for strong companies and well-positioned new entrants are many. Micro- insurance initiatives in particular are set to tap into a massive, previously untouched market. The oil and gas sectors are expected to continue bringing in substantial amount of new business to insurance firms. The underinsured agriculture sector is another area.

The overall penetration is currently at almost 3%, and Ghana could play a leading role in the West African insurance market where total penetration is less than 1% in most countries, according to a report by international re-insurer, Munich Re. There are opportunities for companies to expand into the region.

Click here to view more business opportunities and investment projects in Ghana.