Alibaba has opened up a world of retail opportunities but what are the import costs, VAT and taxes when you’re sourcing goods from China and where do you start?
This article explores Alibaba from a British retailer perspective. It covers a basic ‘how to’ and explains things like Alibaba import costs. It also explains what’s involved with sourcing goods from China and the taxes/VAT involved with overseas shipments.
Let’s start with some history and information about Alibaba, before explaining the process and costs in detail.
The simple function of Alibaba.com is to link people who make goods with people who buy them. Founded by Jack Ma, the company initially set out to help Chinese retailers connect with buyers on a global level. These days, you can find almost anything on the platform and import it to the UK from China or other countries.
The mission of this retail behemoth is to “Make it easy to do business anywhere”. As shared on Alibaba’s website, “We enable businesses to transform the way they market, sell and operate and improve their efficiencies.”
The company’s statistics are impressive. Wikipedia explains that it achieved the highest IPO in history when it was listed on the New York Stock Exchange, with a market value of US$231 billion in 2014. As well as being one of the top ten companies in the world, Alibaba now has the sixth-highest global brand valuation.
Outside of dollar figures, it is more interesting to think about how Alibaba has changed the face of retail. Alibaba.com handles sales between importers and exporters from more than 240 countries and regions. The number of active sellers that use the platform exceeds 8 million and over 12 billion orders are placed each year. The number of active customers is more than 770 million.
When it comes to B2C retail, almost any business can source goods from Alibaba and import almost any quantity to sell to their customers. Don’t confuse Alibaba with AliExpress, which has more of a consumer-focused model and allows people to buy one item at a time. To be clear: Alibaba.com offers retailers access to wholesale prices from China-based manufacturers, while AliExpress sells items directly to the consumer.
You don’t really need to be a business to source goods from China and import them with the help of Alibaba. If you pay the money, you should be able to get what you want. With that being said, some of the larger manufacturers prefer to deal with ‘real’ businesses.
If you’re in the UK, while sourcing products locally may be your goal, it isn’t always cost-effective. This is why so many retailers turn to Alibaba and work with manufacturers in China. Even with the Alibaba import costs and the taxes on importing goods accounted for, you can source products and sell them for a great profit.
So how do you import from Alibaba to the UK? There are a few steps, some legal considerations and some Alibaba import costs to be aware of.
Everyone’s experience will be slightly different, but here is a basic rundown of what to do:
Your first step should be careful research. Make sure the product you want is right for your brand and that there aren’t too many vendors offering the same things.
Experts recommend you avoid deciding to import something before you identify your buyers. Flip this around by doing your market research and finding out what your target market actually wants. This will give you better chances of hitting your KPIs.
When you’re in the research phase of sourcing goods from China, you also need to know about the cost of importing the products you want. This includes the cost of delivery and any taxes you will have to pay (more on that soon). Do a clear cost analysis which includes things like price tags, the cost of storage and the cost of selling your items, e.g. a physical store or an e-commerce website.
Now you’re ready to head to Alibaba to start looking for the goods you want.
Let’s take cycling jerseys as an example. You may have a gym that offers guided outdoor bicycle rides to clients. Having jerseys for sale via reception or your online store will boost your brand’s visibility and allow you to productise.
Jump on the Alibaba website and you’ll see dozens of results, starting from as little as £13 per jersey. Minimum order quantities (aka MOQs) will range from 10 items to 100 and beyond.
Sorting through all the options is overwhelming, so you’ll need to start refining your search. Colour, minimum/maximum order number or the ability to customise are just a few ways to organise. You can refine by region, material and pattern. Alibaba has also recently introduced features to allow you to search by certification, which might suit your brand.
Probably the most important thing to limit your search to is verified suppliers. This gives you a better guarantee of quality. You should also filter to include only manufacturers that offer trade insurance, which will cover you in the event of a supplier going back on your agreement.
At this time, it’s worth checking if you are buying directly from the manufacturer or a ‘middleman’ trading company. Generally, the cost will be lower when you buy directly from the manufacturer.
Now’s the time to make a shortlist.
Have a look at the items that have visual appeal, then read the reviews from other buyers. You can also contact the supplier to ask for a sample. This is also the time to start asking about delivery times, terms etc.
The cost of a sample is generally quite high, and you’ll pay shipping costs as well. However, you can speak to the supplier and ask for a discount to apply in the event that you go ahead with the order. When the sample arrives, check the quality; for clothing like a cycling jersey, wear it, then put it in the wash and see what happens.
Requesting a sample will save you from attending trade shows or having to journey to China yourself. If you do want ‘eyes’ on the ground, you can work with a sourcing agent instead of travelling yourself.
If you feel confident about the product, it’s time to place your order. When you’re sourcing goods from China, many manufacturers give you the option of adding your brand so the product becomes uniquely your own. This is ideal for your gym’s cycling jersey!
A contract may not be important for a smaller or one-off order but legal advisors recommend you get things in writing when you import to the UK from Alibaba. As shared by LegalVision, “Any agreement you sign should outline the terms and conditions of your arrangement with the supplier, particularly as problems can arise, even if the supplier previously had positive reviews and offered trade assurances.”
Before you spend a large amount with a supplier, take the time to review your agreement, and negotiate if you think you can get a better deal. It will probably be worth bringing in an experienced third party who can help make sure you’re getting quality goods at the right price. Many vendors on Alibaba are open to negotiating, so don’t be afraid to ask the question.
Now it’s time to figure out how you will get your goods to the UK.
You have two options depending on size, weight, and urgency: sea freight or air freight. A gym ordering 100 cycling jerseys can arrange air freight as the weight is low and the package size small. An order of something like 2,000 air conditioning units may require a shipping container, which will take much longer.
Your vendor is likely to request a wire transfer. You can use Wise or another company to ensure they get the money and keep things moving. Pay attention to detail and keep a record of suppliers so you don’t have to keep entering SWIFT codes, etc.
PayPal may be another option to explore with your supplier.
Sourcing and importing goods from China is more complicated than ordering a package from overseas. If you plan on using what you buy to make money, there are costs involved beyond the purchase price of the items.
These costs include:
You may come across the acronym FOB when importing goods from Alibaba.
This means Free On Board and confirms that the supplier will cover the costs of getting your goods on the ship or plane to the UK.
When importing goods from Alibaba to the UK, the tax and duties you’ll need to pay depend on the type of goods being imported. Here’s a breakdown:
1. VAT (Value Added Tax):
2. Customs Duty:
You pay Customs Duty on excise goods of any value.
3. Excise Duty:
Remember that these taxes and duties apply to the total cost of purchasing the goods, their delivery, and insurance. Always verify the specific requirements based on the type of goods you’re importing. For more detailed information, you can refer to the official UK government guide on tax and customs for goods sent from abroad (https://www.gov.uk/goods-sent-from-abroad/tax-and-duty)
A sourcing agent can help you calculate VAT and other costs when you import goods from China to the UK.
Alibaba recommends you take out comprehensive insurance for goods you are importing from overseas. There are plenty of insurers out there and this is another good reason to use a sourcing agent; they will help you choose the right option.
Consider insurance as part of your overall Alibaba import costs; it’s always better to be safe than sorry.
The main differences between air and sea freight are time and cost.
It’s possible for your goods to arrive within a week after leaving the factory if they are sent by air. A container ship from China will take closer to five or six weeks but the cost will be less, especially if you have ordered more than £500 kilograms of goods.
In terms of pricing, international shipping costs have fluctuated a great deal due to COVID. You will either pay for a full container, a part container or by the cubic metre/per 1,000 kilograms. Be aware that shipping times have been set back recently by container and staffing shortages as well asglobal crises.
Read our post about shipping costs here.
Additional Costs to considerOther Costs could include:
Handling Fees:
Royal Mail, Parcelforce, or the courier company may charge handling fees for VAT, duty, or delivery charges. They’ll send you a bill specifying the fees.
Customs Declarations:
Submitting declarations can incur costs (typically between £15 and £55 per declaration) and represent additional expenses for businesses.
Transportation Costs:
Consider shipping fees and transportation expenses.
Labelling and Marketing Rules:
Ensure compliance with labelling, marking, and marketing regulations.
VAT Refund:
If you paid the wrong amount of duty or rejected the goods, you can request a refund of VAT or Customs Duty.
Record Keeping:
Maintain invoices and records for accurate accounting. Remember to plan ahead, understand the specific requirements for your goods, and account for these additional costs when importing for your business.
You can figure out your ideal process but here is a list of expert recommendations:
Alibaba has grown so successful and includes so many merchants that it has become overwhelming for many retailers. Yes, it is structured so anybody can place an order but you still need to know what to look out for and how to avoid the risks and potential pitfalls.
When you use a sourcing agent, they will apply their know-how to select a cost-effective product and ensure a smooth product sourcing, negotiation and delivery process. They will ensure you interact with a verified supplier, help you arrange a sample, appoint an inspector and guide you through the import process by recommending the most suitable freight option and confirming you tick all the necessary boxes in terms of Government requirements.
Looking for a sourcing agent you can rely on? Reach out to Epic Sourcing today.
