Many FBA sellers source their products from overseas.
There are good reasons to do so – it’s often possible to find suppliers that will manufacture high quality products, yet sell them to you relatively cheaply. Your opportunity lies in your sales margin.
But what of the pitfalls of offshore inventory sourcing? There are many tales of woe out there from sellers who have been badly burned when their sourcing strategy went awry in some way. For some newer sellers, one mishap can be enough to put them out of business, or at least take them down for a significant period of time.
You don’t want to be in this position, so let’s look at a few of the key risks of sourcing inventory from overseas and how you can help to mitigate those:
#1. Is the product legal?
Here’s one that can be tricky and has tripped up plenty of sellers – is there anything about the product that you want to sell which is protected by intellectual property laws? If you’re trying to sell knock-offs (don’t – you’ll be banned from Amazon), this should be obvious to you, but sometimes a copyright, patent or trademark may be less apparent.
For example, a company may have patented a particular feature of a product and if you produce something substantially similar, you can find yourself in trouble. Don’t expect your overseas manufacturer to know about this – they often will simply tell you yes, they can produce a product to the specifications you need but won’t necessarily know (or care) about intellectual property infringements. This is your job to figure out.
“Borrowing” too closely from other product ideas is likely to get you into trouble sooner or later. It’s easy to find you online, particularly if you start getting a lot of sales. No one wants to attract the attention of the legal department of some big brand.
This isn’t the easiest to mitigate, apart from being careful about taking ideas from other products too heavily. If in doubt you can always consult with an attorney who specializes in intellectual property law. The chances are, if you are trying to produce something unique, you’ll want to engage them anyway to discuss filing your own patents.
#2. Copies of your product
This is essentially the flipside of the first issue. You’ve gone to the time and investment to create your own unique product and found a manufacturer who will produce it to your specifications. Things are looking great until – what? Someone else is listing a product exactly the same!
For sellers in this position, it can lead to a drawn out process of filing counterfeit complaints with Amazon and possibly involving legal work. In the meantime, perhaps the competitor has driven down the price and your business is really hurting.
How did this happen? It’s usually one of three things:
- Your manufacturer made another batch of your product upon seeing its success on Amazon and decided to directly sell it themselves.
- The manufacturer has made more of your product and shipped it to other sellers.
- Other sellers, noting the popularity of the product copied it and had it made through another manufacturer.
Either way, you’re in a rough position. If the manufacturer is selling the product themselves you can try to fight it out through legal channels (as well as through reports to Amazon in an attempt to get them removed), but the laws for intellectual property vary between countries and sometimes you’ll find there’s not a lot else you can do. In the case of that third scenario, you’ll need to follow procedures for hijacking or copyright infringement with Amazon – it’s difficult to avoid this one, but you do need to be alert to spot it early.
How can you avoid or mitigate this situation? First of all, it’s essential to develop good relationships with your suppliers. Don’t treat it like some kind of temporary business arrangement – get to know them better personally. When people relate to you on a more personal level, they’re more likely to want to work better with you.
Secondly, make sure you’ve done what you can from a legal perspective to protect your brand and products. For example, you might file patents, copyrights or trademarks, and register your brand with Amazon. These things help to give you more clout with Amazon and some legal protections, although again, it can be difficult to make them stick internationally.
Fitness products are common targets for counterfeit copying. (Although probably not this vibration machine, as taken from Men’s Health!). Examples on Amazon can be found in the reviews of popular products such as TRX. There have been several incidents of counterfeit products hijacking their listings and delivering a poorer quality experience.
#3. Defective or poor quality products
Product quality is always a risk you’re going to have to deal with, but the risk seems to be heightened when working with overseas manufacturers who don’t necessarily have to comply with the stringent laws that US-based companies must meet.
Many sellers have struck the problem where their initial samples or orders look great, but then they order 2000 units and discover that a large percentage of them are poor quality or defective. Of course you can complain to the manufacturer and hopefully, they’ll do the right thing and reimburse you, but there’s always a risk that they won’t and that you lose money while you have to destroy the defective units.
How can you potentially avoid this situation? One way is to not make any hasty decisions based on one or two good samples. Of course, a manufacturer is going to send you a perfect sample when you’ve only ordered a couple, but if you order 20, will they all be of uniform quality? Order more than just a couple of samples and check them thoroughly to see that they’re made consistently.
#4. Importing issues
Here’s a risk that many sellers don’t consider until it’s an imminent problem – if you’re importing from overseas, you’re subject to all sorts of issues with the actual importing process and this is after you’ve dealt with the manufacturer and product.
For example, it might be that there is a port strike (which seems to happen with regularity at various ports around the world) and no cargo is getting in or out. It might be that the container with your products inside goes overboard and you have to start over with a new order.
Customs requirements can also bring headaches. Customs is required to inspect shipments and ensure that they meet the standards required (for example, not counterfeit, has country of origin labeling and is made using FDA-approved materials). They also facilitate import tariffs (which vary based on the guidelines for the product). Customs can potentially reject your shipment, order it destroyed or impose fines.
One seller we know of was importing food from overseas. A particular canned product they brought in had a small amount of meat in it, which, unbeknown to them meant that the shipment should have also been inspected by USDA. They received the shipment with it having cleared Customs inspection and started distributing the product, when a couple of weeks later, USDA suddenly sent an inspector to their doorstep. The product had to be recalled and they were fined. While they had used a brokerage to deal with their imports, liability still ultimately fell on the seller – ignorance is not seen as an excuse.
Now, you might not be importing food (this is just an example), but all sorts of legalities are involved with importing, sometimes across different government departments who don’t necessarily communicate with each other.
What can you do? First of all, learn as much as you can about the import process and the rules that apply to the product/s you import. Ultimately, you are responsible as the importer. Secondly, try to find a good brokerage with experience in importing your types of products. Many of them don’t seem to want to give any advice, but good ones tend to be willing to point you in the right direction.
As for shipping issues, all you can really do is build a buffer into your orders and ensure that reorders are happening with plenty of time so that you don’t have a stockout.
Sourcing your inventory from overseas can be great for enabling you to purchase at low cost and sell for a good margin, but there are always risks involved.
Product quality is always a common one that comes up, while issues such as intellectual property infringements or hiccups with the importing process are also possible risks to deal with.
That being said, there are plenty of sellers making a very good living through importing their inventory – you just need to do your due diligence and take a few steps to mitigate those possible issues.