Dropshipping from China: China external market explained (AliExpress, Alibaba, Factory, Trading comp
Updated: Nov 21, 2021
When you start doing eCommerce business, for example dropshipping, it’s easy just connect your store to AliExpress and then rock and roll, but when you devote your time into it seriously, there come so many options Alibaba, DHGate, Global Sources, etc,
After you spend a lot of time learning and comparing all the platforms, finally you choose the favorite one, and then in that platform, you are dealing with many different sellers whose performance are quite different, at this point, you may ask yourself again, am I in the right platform, what’s the platform is going on exactly.
Let me tell you all the critical logics these platforms are running, you will know the clear picture of all the platforms and run your dropshipping business feeling more confident and comfortable. Let’s dive into the content.
In the previous episode, we talked about the China internal market. If you haven’t watched yet, there is a link in the Description you can check later. and before we start to focus on the China external market, something might be spinning around in your mind that, it always seems not very easy to buy from China, is it so difficult to take control of the supply chain in China. The answer is definitely, yes, because there is a huge gap between the internal market and the external market in China.
Gap between Internal market and External market
The huge gap contains 2 parts, one is the natural part and the other is the Manual part.
The natural part includes 1st we speak Chinese while most of the world outside speak English. 2nd, there’s always a large distance between your country and China, it is not easy for you to get into China physically, and because of the covid-19, it is even more difficult. The 3rd one is that the time zone is different, not only does it mean we enjoy the sunshine at different hours, it also means our working time is different.
The manual part is, first the Internet wall China government has built, so we can not reach the Internet outside China by default, and it is very difficult for us to search on google, watch youtube, and communicate with the world outside through apps like Facebook or WhatsApp. The 2nd reason is the import and export policy between China and your country. We all know that nowadays international relationships are very complicated, and we should keep updated to make sure that our business is in a healthy state.
Among all of the reasons, I wanna figure out the most important one is the language barrier. You may ask the question in your mind, is it very difficult for your Chinese people to learn English as your second language? Well, let me give you the exact answer.
Yes, it is very difficult for us to learn and speak English. and what’s more, we don’t even speak Chinese very well, I am not kidding, I am serious, man, the reason is that we Chinese love to speak dialect Chinese rather than standard Chinese, from province to city, from city to town, there are all kinds of dialects, and each dialect has different accents. look at the general China dialect map, you may get the vision of what’s going on with the Chinese-speaking language. So it is very common that, before we get on a train everything is fine, and after we get off the train, we just can not understand what people are talking about. It’s really funny, ha, but it’s true. Because of China’s long history of 5 thousand years and so many different cultures and civilizations, it is reasonable, right? Despite the standard Chinese being all over TVs and our school education, we just stick to speaking dialect Chinese in our real life. So as I have described above, our first language is Dialect Chinese, then our second language is standard Chinese, and after that our 3rd language may come to English. As we all know, the most important thing to learn a language is the environment. In our situation, the physical environment is not English and due to the blocked Internet environment from outside, it is really difficult for us to keep learning English. so, that’s the reason why we Chinese people’s English level is a major concern in doing international business.
As you have learned about the gaps between the internal market and the external market, now it’s time to discover the China external market.
open the external market, there’s B2B and B2C, and open the B2B, there comes the most well-known platform Alibaba, Alibaba started from last century in the year 1999 for running the traditional Export business, and it is still running very well. and nowadays it is also very suitable for you to run the Amazon FBA business, you just place the bulk order and they do all the packages and put on the Amazon labels for you, then send them to the Amazon warehouse.
when you dig deeper, you will find there are 2 types of sellers on that platform, one is the factory and the other is the trading company, let’s look at the factory sellers business model, there are 2 layers, the first layer is Alibaba of cause, it charges the yearly fee for 80 thousand Chinese yuan which equals 12 thousand and 4 hundred us dollars, which is not cheap especially for the small business, and that’s the basic fee, if you wanna make your products and store stand out, you have to pay the p4p fee which is highly recommended by Alibaba. The 2nd layer is the factory itself, and the factory should build an export sales team to do the service for the foreign customers, then when you communicate with them, the biggest concern is the MOQ that you can not avoid. why why is that, the reason is that the sales team has to the responsibility for the factory to cover all the fees for paying the rents, the machine purchase and maintenance, the workers salary and other stuff, so what all they need is the big order, you can imagine that if the orders go small, not only it will cause the inefficiency of the production plan but also cause the unstable situation for the factory’s maintenance. So the MOQ can not be small and of course, the bigger the better.
now open the trading company, this model have 3 layers, compare to the factory model, the sales team just turned into an individual company, as a result, it doesn’t have the responsibility to maintain the factory, it has more options, either purchase from different factories or buy from 1688, it all depends on the trading company itself, so the MOQ can be lower than the factory, but the price is marked up, because of the 2 layer business model now turned into 3 layers that each layer wanna make some money, right. but it is not always a bad thing, the trading company’s service quality in most cases is better than the factory itself, it’s more professional in communication and trading service, while the factory is supposed to be focusing on the production. And one thing you should remember is that it is still on the Alibaba platform, the basic yearly fee is still not cheap, so the MOQ is still needed for them to generate enough money to cover the platform cost.
Now let’s look at the B2C market, AliExpress is the platform you definitely go first when you start the dropshipping business. It started very early in the year 2010, but it boosted in the year 2018 when the DSers came out, which is a Shopify plugin created by AliExpress itself, and it is very convenient to book 1 order to fulfill your online store. If you have already used AliExpress you may have so many deep feelings about the platform, not only the convenience but also some unhappy experiences and confusing situations, and you must be really eager to figure out the critical logic about the platform.
open the AliExpress model, do you notice that, it just looks like the same as the trading company model in Alibaba. Then you will find the significant difference is that AliExpress doesn’t charge the yearly fee, instead, it charges the commission fee for every single order at the ratio of 8%, yes 8%, the platform commission fee is not cheap ha, but anyway it works, right? especially for the dropshipping business model that starts from one single order.
there comes one thing you should think about it, there is no yearly fee that means there is no entrance barrier, so everyone in China can open an AliExpress store for free, therefore the service level in AliExpress is in such a wide range and is not always promised as it is supposed to be, that include the English level, the knowledge level, as well as the execution level, that means you have to spend lots of time to do the research and communication to test different seller’s service. Yes, if you have multiple categories or you just change your store category, you should spend more time evaluating different supplier’s service levels such as the product quality, the shipping speed, the issue response time, and so on.
So compared to the trading company model,
ok, when it comes to the 3rd layer, it is just the same as the trading company model totally.
OK, let’s take a quick review of all the 3 business models, each model has its pros and cons, now let’s figure out the best point of each business model to make it more clear, alright, the factory model has only 2 layers means we can get a very competitive price of the product, the trading company model is most professional in service that saves you a lot of time, and the AliExpress model has the 1 order placement advantage for convenience. and of course, each pro is the other 2 models’ weaknesses. That’s a simple conclusion. Of course, you can have more conclusions based on these 3 models.
until now you have got the full picture of China internal and external market and the gap between them, you also know the exact position of each platform located, for Taobao, JD, Pinduoduo, 1688， Alibaba, and AliExpress. and from now on, I hope you are much more confident and clearly know what you are doing when comes to these China market platforms.
and some of you may wonder, all of the models are not perfect, is there any better solution? and someone may also think I have heard that there’s sourcing agent or drop shipping agent in China, what’s their business model, how does it work, will my business benefit from that model, ok ok, take a break and enjoy your life, we will have a deep discussion on that topic in my next video. Now it’s the time to hit the like button and subscribe to my channel, that really encourages me to create more useful content for you. Thanks for watching, see ya.