The world is flat! I think it already is, and it is rapidly become even more so. If you are a product based business, listen up! Chinese factories have been working harder and harder to go direct to end consumer. They are working hard to learn how to do their own brands and build up their own distribution.
Are you prepared?
Today, we will go through what is happening and what you can do.
What is Factory to Consumer (F2C) or M2C?
It’s all about supply chain and distribution really. And we make up all these fancy acronyms to sounds cool at trade shows and in the industry.
I’m sure you’ve heard of B2B (business to business) and B2C (business to consumer). Maybe you’re also familiar with C2C (consumer to consumer). This is when an end customer is selling their goods on eBay or Craigslist to another end consumer / end user. These all boil down to who is the seller and who is the buyer. Is a business selling to an end consumer (B2C) or is a business selling to another business (B2B). The difference is the size of the order is bigger on B2B as it is a wholesale order at a lower price. Those goods are then resold to a “C” as this “B” buying the goods is going to distribute the goods “B2C”.
Now, add in this F or M – which stands for factory or manufacturer. This stands for what many would call “factory direct”. Consumers want to buy the goods at the best prices and direct from the source. So in today’s world- most of these factories and manufacturers are now in China, we outsourced everything here. These Chinese factories are working hard to learn how to distribute their goods to the end customer, direct.
The idea of F2C is to “Cut out” the B in the middle. The business being the importer / wholesaler / and retailer.
Normal circumstances a standard supply chain going something like this:
You can also add in drop shippers and affiliates at the end there, but they are not always involved in the transaction. They would consider themselves sales channels for the retailers.
But, what F2C is:
Video of F2C with Yung Chung Lin
I made a video where we discuss F2C, in Shanghai, China with Yung Chung (YC) Lin.
Chart of All The Acronyms from C2C to F2C
Here is something you should get a good grasp on if you do a product business:
Consumer to Consumer – normally used goods or unwanted gifts being resold on a marketplace.
A business (retailer) selling their goods to end customers.
A business (wholesaler or distributor) selling their goods to other businesses. These are retailers, who will then sell to customers.
This on I haven’t seen used, but logical idea is a wholesaler / distributors / importer buying from a factory or manufacturer.
This new idea of a factory selling direct to the end customer, thus cutting out the B’s in the middle in the process.
When Did F2C Become a Hot Topic?
So I’ve been in China since 2007, and back was just getting here, factories had no interest on selling direct to consumers. There were a few reasons for this:
1. Making good money from importers. They were already getting good order volume from Western importers and distributors. They were busy counting their cash and getting paid upfront for large manufacturing orders.
2. No idea how to do it – I would mention to a factory why not make their own brand. They had no clue, and no idea where to start. Plus they didn’t value it or put a budget to it. There were some times I used to try to sell this service to factories, it was a lot of education without many deals closing. The market wasn’t ready
3. The market wasn’t ready. Consumers weren’t comfortable buying from a Chinese factory and waiting the 2 weeks. Nowadays, I hear my friends in USA saying they search right on Alibaba and buy a wholesale box of certain goods. Factories before didn’t want to bother with lower volumes, but now they are open minded.
4. Selling platforms and tools weren’t easily accessible in China. Merchant accounts, eBay, Amazon, and other platforms were not easy for Chinese sellers to get. Now these companies are advertising at Chinese e-commerce events and other factory focused networking events.
5. Global Logistics Not As Mature. The shipping times and tracking of goods across international borders was rough! And these selling platforms weren’t as understanding with an international shipment. Nowadays goods shipped from anywhere to anyone seems cool for everyone.
So, I think it was around 2010 or 2011 when things picked up. Here’s my hypothesis.
The inverse of the reasons above. But more specific:
The global economic crisis of 2008.
Factories were sitting here waiting, and in B2B, the time for the slowdown to hit takes longer to be realize. I was going to networking events in China when they were discussing the economic crisis and how they had to be more proactive as Chinese manufacturers. This is when they started having to get creative and think outside of the box to keep their businesses operating.
Importers going to Southeast Asia.
A lot of Chinese factories noticed their Western buyers changing their factories to Southeast Asia. China isn’t cheap anymore! So as the Chinese saw this threat of losing their big clients, they realized they had to go direct to keep their businesses going. I remember some rather “rah rah” speaker events. A Chinese factory said we’re not just cheap labor and tossed aside, it’s time for us to make our own brands and compete on a global level.
Seeing success from Light in the Box, DHgate.
There are some massive Chinese e-commerce sellers making a ton of money. And they were sharing their stories and experiences at a lot of these e-commerce events in China. Everyone in the world, but I have to highlight Chinese especially, love to earn money. They all were listening ears wide open and notebooks out, how to crack the market and get direct cash from American consumers.
So, nowadays it is totally common to see a Chinese seller directly distributing goods in Amazon, eBay, or their own e-commerce shop. And quite a few have started to tap into the big box retailers from my discussions with some manufacturer sales reps.
How Does This Impact Your Product Based Business?
So you’re still reading, that is great! Maybe you’re a bit nervous. You’re sitting in your design office in US or Europe and wondering what are you going to do when the Chinese factory you are buying from starts to compete with you on your home turf!
Well, you still have time. I’m writing this in 2015, and there are still a lot of advantages a Western e-commerce seller has. It’s the English language skills for good product descriptions, and marketing skills. We need to keep on top of our game and keep innovating faster.
Yet it will get tougher and tougher. Here’s a story from back in the day! My buddy was importing mp4 players into USA and selling them on eBay. His business was getting bigger and things were moving along. He ordered a 20 foot container of these products at what he thought was a great price. A few weeks later they arrived in Los Angeles, and by the time he put the eBay listing online, the prices were too high! He saw that Chinese sellers on eBay put the prices down to the same price he paid for them DIRECT from China. Plus he had to pay the shipping of the container and the import taxes.
He was crazy upset. Chinese sellers often, at least in the market now, compete by being the lowest price. And this isn’t just to the Western market, this is how Chinese compete in the market here in China. They don’t think about quality and service, they instead drive the prices lower and lower. This is to take over the whole market, drive their competitors bankrupt. They want to get the volume, the market share.
Of course some of the e-commerce seminars I’ve been too, they are learning more now about quality and service. That is because it is getting more competitive than a few years ago. Price alone won’t win. I’m still blown away that a Chinese seller can sell a USB stick for less than a dollar with free shipping. It’s just that they are doing such massive volume.
But they also want to drive out the competitors, and keep new competitors from entering the market.
My advice to a Western e-commerce seller is to not even attempt to fight on price. Find angles to make your product stand out without connection to price.
Ways You Can Prepare for F2C Threat
Being a business owner is always a constant struggle. You need to always think strategically and creatively. But if it was easy, then everyone would do it, right?
So let’s brainstorm together some ways you can prepare.
You Have Your Own Brand, right? I really hope so. If not, make a brand as soon as possible.
Register that brand, in China. Listen to the podcast with Dan Harris from China Law Blog, he gives great ideas on how to protect your IP, in China. Register this trademark and try your best to keep an eye on it. This will protect you from not only people selling the goods in China without your permission, but also exporting it. Sure, sure, I know how do you enforce it? But really it is not a big investment and if you notice it become a problem – at least you have some leverage to work from.
Leverage Your English Skills! Write! Be Unique. Just like I’m making today’s guide, share amazing information with your buyers. Get a blog, or write on other people’s blogs – but add value to your community. This is a great way to connect with your audience and be more than a seller on Amazon. Invest in your community, add value, and they will want to support you and “keep you around” for quite a while.
Leverage Your Network. You’ve hopefully been in this product industry for a while. Maybe to trade shows? Or other people in the industry too. Work together, do joint promotion campaigns. Have fun with it! Get a crazy social media campaign. These kinds of things are difficult to do from the other side of the world. Believe me – I am on the other side of the world 😉 Timezone alone is a game changer.
Leverage The Trust You’ve Built Up – Let your buyers know who they are buying from. Make a great about us page on your website. Show the people behind the business. Don’t be afraid to be personal – that is what people want to see. They will trust you more, and therefore, be more likely to buy from you!
Then Again, Other Threats (Opportunities) For the Future
I’m fascinated with other huge changes in the product based world. It is turning into software! Maybe in 10 or 20 years we won’t even have to do mass production. Listen to TropicalMBA’s podcast about 3D printing for some inspiration on that.
Will you need to buy 1,000 pieces from a Chinese factory anymore? Maybe you can just buy your own mini-factory in your office and print and ship from your HQ. That will make life interesting for all kinds of people.
This is where owning a brand will be important. When you boil everything down – the main value of a business is the brand. And the brand is that people trust this product (or service) is good quality and reputable.
So maybe you won’t have to worry about F2C and instead will jump on the 3D printing bandwagon. That would be pretty sweet. Stop putting tons of money upfront into mass production on the other side of the planet. Instead focus on innovating and creating more awesome products and designs.
Life is so amazing, we need to seize these opportunities.
Or, Become a Chinese Factory?
Hey, maybe you’re also thinking, “if you can’t beat ‘em, join ‘em”. Why not open up your own company and factory here. You can then control the supply chain and ship direct from China yourself.
This is something I would think long and hard about. I have friends who have opened a factory and it is a whole new challenge. Those complaints you have about quality – ya, now they are your problem! You need to make sure you hire the right factory workers and manage them.
Plus the fixed costs of the rent, company maintenance, etc etc.
But there are more and more companies in China that can help you fulfill direct around the world B2C. Fulfillment is the keyword. We had a podcast with Chris Moore and Floship about their Hong Kong warehouse and logistics center. There are a few others to consider as well – so that might be another option to compete with the F2C crowd.
Don’t Just Rely on E-Commerce, eBay and Amazon
Another one for you guys – don’t just focus on online. There are a lot of more traditional channels you can use to get your products out there. As online becomes more “flat” and everyone around the world can do it, you need to stay ahead of the pack.
So get out there and do some B2B sales! Go to trade shows, get some manufacturer sales reps in different regions of USA.
The whole way to stay competitive in today’s world is to be ahead of everyone else. Out-innovate. Don’t get comfortable.
Be a Quality Brand People Come Back To
Driving this one home to wrap up today’s guide. You are your brand. You as a person have a personal brand, and your product and/or company has a brand too.
What does it stand for?
Quality I hope.
But you can also give that feeling of action. What does the buyer think of when they see your logo, use your product, consume it? Try to envision that, and don’t just think of a brand as a name and a logo. It is what it represents, the community it is reaching out to.
Main Point – Don’t Get Comfortable, Keep Innovating & Learning
Really, what I think today’s article is don’t just relax on the beach in Thailand and collect your Amazon payments every 2 weeks.
Well, keep doing that!
But also be creative. Find more channels. Differentiate your product by becoming a quality brand.
And help each other. You can start by leaving a comment below. Let’s see if we can get some interesting perspectives on how people are staying ahead in today’s more and more competitive e-commerce landscape!