Alibaba is China’s largest online commerce business. The Alibaba business-to-business website connects exporters of goods — predominantly Chinese companies — with international businesses looking to source goods directly from the supplier. This article sets out how to buy goods from Alibaba and what you should be aware of before making your first order from the marketplace.
How to Find a Trusted Seller
You have two different kinds of sellers on Alibaba, being factories and trading companies:
- a factory refers to the actual factory that will produce your goods. Many of these factories have their own sales teams who engage with buyers; and
- a trading company is a middle-person that sources the goods from a factory and then sells on the goods to buyers.
Your choice as to what type of seller you would like to engage should depend on:
- your previous experience with importing goods from overseas;
- the type of relationship you are hoping to have with the seller; and
- how long you expect the relationship to last.
Directly dealing with the manufacturer is generally the most cost-effective choice. However, using a trading company may be more suitable if you are having trouble finding a factory that offers the specific goods you are looking for or if you are planning to buy more than one kind of good. In such cases, a trading company may assist you in sourcing the goods from different manufacturers. The downside of using a trading company is that you will have to pay some kind of premium for using their service.
When searching for products on Alibaba, the database will list a number of suppliers for your desired product. Additionally, a lot of information about the sellers is available, so make sure to read through the information carefully. When choosing which supplier to go with, pay particular attention to the:
- number of reviews and their score;
- minimum order quantity;
- time listed on Alibaba; and
- time listed as a Gold Supplier (businesses which have been verified by a third party agency).
Even though it costs extra upfront, always make sure to retrieve a sample before placing an order. Take your time to properly analyse the sample to ensure it meets your quality expectations.
The majority of suppliers on Alibaba are manufacturers and trading companies who sell in bulk. As such, they normally prefer to sell to buyers who are running a business. Alibaba does allow users to buy goods without having a business by using the Wholesaler function, however this limits you to goods available in low minimum order quantities and you will consequently not be able to deal directly with some sellers.
You should consider what type of business structure would best limit your liability and protect your funds. If you will run your business by yourself, you can operate your business either as a sole trader or a company. While operating as a sole trader is simple and cost-effective, you have personal liability of your business’ debts. This stands in contrast to running the business as a company where, as a shareholder, you only have limited liability.
Manufacturing and Supply Agreements
Many sellers at Alibaba will offer their products under a contract. 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. You should properly review the agreement and negotiate with the seller if there are terms that you are not comfortable with.
The agreement should clearly stipulate who stands the risk for transportation of the goods. A commonly used standard contract term at Alibaba is ‘Free On Board’. This means the seller is responsible for any costs associated with getting your product to the stipulated place of delivery. Often, this is the shipping dock closest to where the manufacturing takes place. Afterwards, you, as the buyer, bear the financial responsibility of transporting the goods to your final place of storage.
You will likely want to sell your goods under your own brand on the Australian market. To protect your brand, you should consider applying for a trade mark.
Before deciding on a brand name and your trade mark, you should do a search of the Australian trade marks register. This will allow you to ensure there are no other business or products using a similar name or branding.
Additionally, goods which pass through Australian customs and infringe trade marks or copyright under Australian law will be seized. You should take every step to ensure the goods are legitimate and are not counterfeits by brand or design.
When importing goods bought on Alibaba into Australia, you should understand what fees and taxes you are liable for. All goods imported into Australia are liable for duties and taxes unless exemptions apply.
For smaller imports, the main exemption is that there are no duties, taxes or charges to pay if you are importing goods with a value of less than $1,000. Additionally, no declaration is needed if these goods arrive by international mail. However, if goods arrive by air or sea, you or your agent will need to make a Self-Assessed Clearance declaration.
You should keep in mind that some goods, such as alcohol or tobacco, are not eligible for the small goods exemption.
The amount of tax and duty payable is based on the value of the goods. Normally this is calculated based on the actual price you paid for the goods. Therefore, it is important you show the exact price and currency in which you paid. The taxes and duty you must pay include:
- import processing charges, being the fees that customs will charge for processing your import. The fee is based on the value of your goods and is currently between $23 and $192;
- customs import duty, which is calculated as a percentage of the price you paid for the goods. The duty falls between 0% and 10% depending on the goods, the most common rate being 5%; and
- goods and services tax (GST), which is payable by businesses as well as private individuals. This means GST must be paid irrespective of whether you are registered for GST or not. However, if you are importing goods for your GST-registered business, you may be able to claim a tax credit for the GST that you pay on those goods.
The GST payable is 10% of the value of the taxable importation, which is the sum of:
- the value of the goods;
- the customs duty;
- the amount paid to transport the goods; and
- the insurance cost for that transport.
Finding the right product is a good start when sourcing material from a marketplace such as Alibaba. However, it is essential you also:
- find the right type of supplier;
- ensure you have a proper agreement; and
- understand the various implications of importing goods into Australia.
If you have any questions about how to buy goods from Alibaba or setting up your online business, get in touch with LegalVision’s e-commerce lawyers on 1300 544 755 or fill out the form on this page.
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