Sourcing Smart Watches and Wearables for Amazon?

Sourcing Smart Watches and Wearables for Amazon?

How Important is Big Brand OEM Experience?

By Dr. Neale G O’Connor FCPA (Aust)
www.Chinasourcingacademy.com/ Join Now as Free Member!

Introduction

Motto established in 2009, it has been focusing on development and manufacture of the smartwatch, smart bracelet, and smart name card since 2014. Before 2014, it did OEM for SHARP, like the PCB chips, POS machines and set up boxes for the digital TVs.

Product

Smart Watches From China

Import Smart Watches ChinaTheir smartwatches can be divided into different groups based on different customers, which are for children, for aged people, for sports use and adults. The selling price of the smartwatches varies from 100RMB to 600RMB. Minimum order quantity (MOQ) IS 1,000 units, but they can accept small orders as samples, especially during the expo. The gross margin of their products is around 15% to 20%.

This year our annual sales are approximately twenty million, but it shows a declining trend compare with last year, the reason is many of the electronics companies change their production lines to the smartwatch. Therefore, the fierce competition forces the intense price competition.
Mr. Johnson, Overseas Marketing Manager

Customer

Half of our customers come from the domestic market, and the other half is overseas markets. For the domestic market, we are selling mainly through the distributors. And we normally use Global Sources and Alibaba International for overseas sales. The major overseas customers are from Europe, Russia, and American. But recently we found that the smartwatch market in the Middle East and South Africa is a growing trend, so we will keep an eye on the new market.
Mr. Johnson, Overseas Marketing Manager

 

Therefore, they want to advertise more in that area to boost the sales. 80 percent of their overseas customers will visit their factory, some of them see their products in the Expo and come and pay a visit when they have a business trip to China. The reason most of the international customers will visit the factory before they order is they want to make sure the factory is real, and they can also know more about the process of production.

The churn rate of the customer is low, because they build up the good relationship with their regular customers, and even they cannot be business partner due to the customers shift out the industry, they will still keep in touch with each other.

Factory

Their factory covers an area of 2,000 square meters with three production lines, around 60 workers. The daily capacity is 4,000 units per day. They normally do not outsource their production line to other companies because it’s hard to control the quality of the product.
For the payment terms, customers should pay 30 percent of the full payment in advance, and fetch the balance before the shipment. It is the same for both international customers and domestic customers. But for the customized products, the payment agreement is different.

 

Since if the customers need to customize the smartwatches, we will take more risk if the customers cancel the order, because the outputs have the customized brand name in them, so it is hard for us to sell in the market. Hence, the customers need to pay the full amount before the production.
Mr. Johnson, Overseas Marketing Manager

Quality Control

In addition, MOTTO’s products are CE, RoHS, CCC certified, like the other smartwatch factory we visited one month ago, MOTTO also does not have FCC compliance, they said some of their smartwatches do not need this certificate at this stage, but if the customers require so they will get one.

Outsourcing Strategy

We will outsource some of the orders if the number of the order exceeds their capacity, especially in June, July and August when the sales are rapid growth, nearly half of the order are outsourcing to other factories. In order to ensure the quality, we will arrange their own QC team to the co-packing factories and do the testing in accordance with their product standards.
Mr. Zhang, Sales Manager

 

Mr. Zhang emphasized this is not a nice-to-have arrangement; it’s a must to have their QC personnel go to the factories and monitor the production process from the beginning through to its end.

They have an industry association in the smartwatches business, and there are around 40 to 50 companies in the association, they all know each other and help each other when they there are outsourcing orders.

 

Normally, if the order is half done by the co-packing factory and us did a half, we won’t tell the customers, but if the outsourcing factories entirely do the order, we will inform the customers about that, and will guarantee the quality will be the same as our production.
Mr. Zhang, Sales Manager

 

And most of the customer’s value product quality above the sourcing of the smartwatches, thus they understand this situation and this outsourcing issue will not affect their relationship with Motto as long as the product quality is as good as before. For now, 30 percent of their orders are the OEM orders, and 70 percent are their brand name smartwatches.

Human Resource

Now they have around 60 workers; each worker has an 8 hours shift. They also have 6 R&D engineers and 12 sales people as well as six internal service employees. However, before, they have more than 200 employees, but due to the increasing of the labor costs, they have to lay off some workers to reduce the costs.

The turnover rate is about 20 percent, below the average level in the industry. The reason is that they have a promotion mechanism for the workers, if they do a good job, then they have the chance of advancement. What is more, MOTTO also provides the training opportunity for the employees.

Competitive Advantage

In comparison with other competitors in the smartwatch market, their relationship with SHARP is worthy mentioned. Not only because this corporation will help them enhance their reputation among the customers, but also it helps them with their production efficiency and how to have a better quality control system. They can benefit from the experience, for example, they have documentation of work instruction above each of the workstations, and also they have a higher standard of the quality control process, like the poor quality product zones.
No.1 Challenge and Response

Johnson, the sales manager of the overseas market, said that the biggest challenge they are currently facing now is themselves. Specifically speaking, they need to put more efforts on marketing. They need to absorb more information and help them create an efficient marketing strategy.

Their response is to cooperate with an intelligent person with desirable skills, like learn the core technology from overseas companies, and learn the applied technology from domestic companies.

Positive

Recently, the market research shows that Smart wearables for children grow in popularity in China. Therefore, they are considering adding more practical functions into the smartwatch to increase the utility and also attract customers. For instance, payment functions, metro card function, and entrance guard function.

Besides, they keep improving the existing products, like add heart rate detection and blood pressure monitoring to the smartwatches for aged people.

Challenges

They have an online shop in Taobao, but the sales are under-performance. The reason is they do not have a systematic management of the online sales department, due to the higher labor cost and the management oversight. Therefore, the online shop becomes untended.
Surprise

So far they do not want to expand in an unsustainable manner; therefore, they nearly shut down all the production line for previous products and focus on the smartwatches manufacturing. Sometimes, when the number of order is increasing, they also ask other factories help them doing the OEM for them, but here comes the quality issue of the OEM order, they need have a strict QC for these products.
For more details of the factory visits and tips and tricks to avoid when sourcing from China please visit http://www.chinasourcingacademy.com/

For more information about sourcing smart watches from China, read this blog post by Dr.Neale O'Connor. on CSIC.

Dr. Neale O'Connor
Cofounder of the China Sourcing Academy, founder and director of the China Supplier 1000 Project. Senior consultant of the China Lab at Silk Road Associates (Hong Kong). Currently teaching at the Hong Kong Baptist University.