We are often contacted by inventors and designers who have great prototypes or ideas, but lack the resources to go into full scale production. Often an option for those in this position is setting up a Licencing Agreement or finding a manufacturing partner. Unfortunately, like most things in Chinese Business, this isn’t as simply as one might hope.

If you are thinking that licensing your IP or partnering with a Chinese supplier is a feasible option for your product to reach its potential, then read on, for I am going to give you some major points for licensing your prototype/product in China:

1. Finding a Suitable Partner – Not surprisingly, ensuring you deal with a suitable manufacturing licencee requires the same first step as the importing process – Research & Tender. Making sure that your partner is trustworthy, well established, certified, offering fair market price for your IP, and has good service levels can ensure an easier ride through negotiations.

2. Setting up the Relationship – As I am sure I have mentioned before, Chinese business is all about relationships. When partnering with a Chinese manufacturer or dealing with such an important issue as IP licensing, it it important to remember that these things can’t be rushed. If you are looking at doing it on your own, be prepared for a few trips to China all atleast many months of phone calls and emails. In Chinese culture, often the most important moments of negotiating aren’t on a conference call, but in the 5th or 6th course of a 13 course banquette put on by your Chinese host! Before you even begin doing up a contract, it is important to get to know and build a relationship with your Chinese partner, because that is exactly what they will be looking to do with you.

3. Rules of Engagement: The License Agreement – When implementing your agreement, remember the key word for your Chinese supplier is PRACTICALITY. Knowing what is practical and workable for your Chinese supplier, and implementing that into your agreement is the best way for getting favourable results. Using an Australian or foreign created agreement will often be problematic for a Chinese supplier, and can greatly affect the likelihood that they will sign it. This is where building a relationship with your supplier first, shows its true importance. Having a relationship established, where you have a good understanding of your partners motives and needs, will best serve you when it comes to negotiating your Licensing Agreement.

4. Effective Collection of Payment – Collecting royalies for your IP can take many forms and in some cases can open new doors or opportunities. The most standard form is a percentage of the products sold or a fixed price per item. Arrangements such as monthly or yearly retainers can be difficult for manufacturers to agree too, for they have no different gauge of the potential income. An alternative, and one often sometimes taken by inventors with low capital who wish to sell to there own market, is to have the licensing compensation include receiving the product itself. For many, this can deliver their dream of selling to their own market (e.g. Australia) where significant profits can be made.

The process of licensing or off-shore partnering under you own steam can be long and intensive, even with an IP Protection specialist on board. Saying that, it is possible, however, the process can be shortened and the risk reduce simply by utilizing the support of experienced professionals.

If you would like to know more about the process on Licensing & Royalties in China, please feel free to contact us.

In this post, I want to talk about some of the possible costs associated with importing from China.

There are many variables involved, so use the following as a guide:

•    Cost of goods – $ variable.  The average cost of goods we bring in is $30,000 (20 ft container), but we’ve brought in containers with over $100,000 worth of goods too. After you have at least six quotes from suppliers, you’ll have an idea of a fair market price to pay.

•    Sourcing company – $ variable depending on level of service.

•    Freight – $ variable, depending on volume, port it’s coming from/going to, time of year, freight company used etc.  Allow $2,000 – $5,000.

•    Duty – Between 0% and 17.5% in Australia of the value Customs put on your goods

•    Goods & Services Tax – 10% of (The Customs value of cost of goods + freight + insurance + Customs duty)

•    Other e.g. Customs clearance, document fees, wharf charges etc – Allow another 3% on top of everything else.

Finance

To fund your importing, check your usual financing sources, including the banks.  Financial products go under different names including Trade Finance, Inventory Finance and Import Finance.  For small to mid size companies, the Bank of Queensland has good products and helpful service.  For established importers, a new and innovative finance company worth checking out is Octet Finance, who specialise in financing importing from China.

Failing that, friends and family are worth asking for a loan too!

In this post, I will show how to determine whether it’s feasible for you to import from China or not.

After taking all costs of importing into account, we generally save our clients 30% to 50% on their current costs by importing from China.

CASE STUDY

Results for a client importing a 40 ft container load of ice cream cups:

Cost for client to purchase from a local wholesaler:    $256,200

Landed cost, buying direct from the factory:             $63,932

The client saved:                                                 $191,268

Saving:                                                              Approx.74%
Remember, money saved is money in the bank.

You first need to find out whether the cost savings of sourcing direct from the factory in China exceed the fixed costs like freight, customs, Duties and your investment in a sourcing company.

For example, if you only wanted $5,000 worth of goods, it may be cheaper and less time consuming for you to buy this product locally, as the on-costs of international trade can add up to this amount alone.

Importing is only feasible after you require a certain volume, or value level.

As a rule of thumb, if your order is a minimum of US$20,000 to purchase from a factory/importer/wholesaler/retailer in a Western country, it should be feasible for you to purchase directly from the manufacturer in China.

Firstly, find out what it costs to buy your product locally.

Getting a local quote may also help you understand what materials, labour and production charges are involved.

This can help you when getting quotes from China, as you may now have the ability to specify materials in more detail, and have a better understanding of the manufacturing process.

And don’t forget to get quotes on packaging, if applicable.

When buying direct from the manufacturer, it helps to have a good understanding of your product manufacturing process, and be able to use manufacturing terminology.

For example, people are sometimes unaware that tooling or die charges may apply.

You can do a feasibility check by getting container quotes, Duties, and possible wharf charges for your product, or simply do our complimentary Feasibility Check, and we’ll let you know if it’s feasible or not.