A profitable online business that’s growing in popularity is importing custom manufactured products from China and selling them through the Fulfillment by Amazon (FBA) program.
One big advantage of sourcing your own product from China is the ability to be unique. While the competition is selling the same products as everyone else, importing a one-of-a-kind niche product from China can mean you’re the only supplier. If that product is in high demand, being the sole supplier can be a very profitable position.
The gurus hawking FBA as the ultimate risk-free path to riches make it sound easy to turn all your ideas into successful products. One post I read advised to take your idea and head straight to Alibaba.com, a site where Chinese manufacturers and middlemen advertise the products they’re capable of producing. The post encouraged you to have them custom manufacture and ship 1,000 units of the product to Amazon’s warehouse and, from there, sell them on Amazon at fantastic margins. The perfect online business, they say! Until one of your products burns someone’s house down or a child gets hurt.
Like building any real business, you’re not exempt from using common sense when importing from China for Amazon FBA. Importing private label goods from China comes with its own pitfalls. Products imported from China account for more than 60% of product safety recalls. If your product injures someone, you’re responsible. The buck stops with you.
While an attorney representing someone injured by your product may attempt to go after Amazon’s deep pockets as the retailer, your role as the manufacturer won’t go unnoticed. Plus, there are a myriad of product safety regulations and labeling requirements that you must comply with. Even if a lawsuit against you is completely without merit, you’re still going to have to hire an attorney to answer the civil complaint — we’re talking at least a couple thousand dollars and that’s if they can get the case dismissed (or settled) quickly.
While a Chinese manufacturer may produce (or be willing to create) a product that meets your exact specifications, there’s no guarantee that the product meets U.S. regulatory requirements. To make matters worse, unless you have official documentation, the presence of official-looking regulatory symbols and certifications on the product indicating compliance are worth about as much as the ink used to print them.
A retailer reselling products has responsibility for the products it sells, but often retailers will attempt to pass much of the liability onto the shoulders of the manufacturer. This is made more difficult when dealing with a foreign manufacturer. Unfortunately, U.S. courts have very little reach in terms of assigning liability to Chinese companies without a domestic presence.
When selecting a Chinese manufacturer, it is essential to choose one that will produce your product so that it meets U.S. regulatory requirements. Some government agencies that regulate products include the Food and Drug Administration (FDA), Federal Communications Commission (FCC), and the Consumer Product Safety Commission (CPSC). Depending on your industry, however, one or more of a dozen federal agencies could require you to meet certain standards.
A huge mistake sellers make when importing products from China is to assume that the manufacturer knows the regulations you have to comply with. They are experts in manufacturing, not necessarily in regulatory compliance. It’s always your responsibility as the importer, wholesaler and retailer to make sure your products are in compliance.
Consumer product safety is regulated by the Consumer Product Safety Commission (CPSC) in the United States. You should know that the CPSC considers importers of goods from China to be manufacturers under their rules. This means that these rules apply to you, the Amazon FBA business owner, when you are reselling imported Chinese goods.
For example, if you’re producing a cookware product that comes in contact with food, the FDA requires that you use coatings that conform with their regulations. You must meet certain criteria in order to have your product be “FDA-compliant.” As an importer and reseller, you’re responsible for your products meeting all applicable requirements.
If the product you import is intended for children 12 years of age or younger, there are even more extensive requirements. If your product is classified as a “children’s product,” you are required to submit it for third-party testing and certification from a CPSC-accepted laboratory. Your product is also required to have a tracking label and you may be required to attach a postage-paid customer registration card in order to track sales in case of a product recall.
Some other examples of labeling requirements include country of origin labeling (for example, “Made in China”), labels indicating regulatory compliance or certification (FCC ID, CE, or UL-listed), and warning labels such as age restrictions (“Not recommended for children under 3”) or warnings about choking hazards and loose parts. Again, the appearance of a regulatory symbol on a product means only that the manufacturer knows how to print a logo on a product – always verify that products are actually certified.
Obviously it’s not all doom and gloom. There are steps you can take to reduce your risks.
The first step in protecting your FBA business is to make sure you’re working with your attorney to structure your business in a way that protects your personal assets, both from general liability and products liability claims. That means doing more than using an online legal service to set up an LLC. Even a corporate entity such as an LLC or S-Corp, for example, won’t always prevent someone from suing you and taking your house (see piercing the corporate veil). Having an attorney look specifically at your situation is vital.
You also need to have insurance for your Amazon FBA business. Even though Amazon only requires insurance for sellers reaching certain sales thresholds, you should consult your insurance agent early in the process. At the time of this writing, Amazon requires sellers reaching certain sales volumes to obtain commercial general liability (CGL) insurance of up to $1,000,000 per occurrence. Amazon also requires that you use specific wording on your policy listing them as additional insureds under your policy.
Ted Devine, CEO of online small business insurance company Insureon, says that the biggest liability for those importing products or having products manufactured is product liability. “Even if the products being made are not under the retailer’s own label or are not being actually manufactured by the retailer, that business will still be the liable party in the event of a customer lawsuit,” he says.
The cost of a commercial liability policy will also vary with the products you’re selling. Devine says a liability policy for a business manufacturing and importing clothing (starting at $425/year) would be less than for a business importing exercise equipment (starting at $6,000/year), for example, due to the increased risk of injury.
In some cases, product liability coverage may not be available at all or might be prohibitively expensive. “To give you an example,” he says, “we’ve seen a trend recently of e-cigarette manufacturers and retailers that admitted markets aren’t willing to insure. This means that e-cigarette businesses often have to turn to specialty carriers, which tend to be more expensive. Depending on the contractual obligations an e-cigarette retailer has (e.g., to Amazon or eBay), it may cost in the ballpark of $6,000 to $10,000 per year to get a general liability policy that includes product liability coverage.”
Devine says that hefty premiums aren’t limited to just one industry. He says harder to insure businesses include those that manufacture or import medical devices, children’s wear, and personal care items (perfume, makeup, lotion), to name a few. For these businesses, he says, you could easily see policy prices in the same range as e-cigarettes.
Other types of insurance insurance coverage that may be included in some policies or available separately for small businesses importing from China include business income (or business interruption) insurance, product recall coverage, manufacturing errors and omissions, and coverage for loss of ocean cargo. When they review your business activities, your insurance agent will be able to advise you exactly which type you’ll need.
In addition to protecting yourself by having a corporate business entity and liability insurance, here are some ways to avoid importing dangerous or defective products from the start:
- Consult an engineer familiar with the type of product you’re creating. Mechanical and electrical engineers offer their services online and are often able to evaluate products for safety issues in the design phase at a reasonable cost. Identifying a problem before production begins will save you enormous costs.
- Consult a professional familiar with regulatory compliance in your product field. In addition, the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) requires that regulatory agencies publish free compliance guides to assist small businesses.
- Be sure that the manufacturer knows your expectations. Ask them to send proof of test results and certificates. This lets them know you’re paying attention and you expect the product to be produced to the applicable standards.
- Make sure to be clear when specifying materials. If you don’t specify the paint on a toy, for example, a manufacturer might use lead paint (it’s happened!). Keep in mind that Chinese manufacturers may use cheaper materials to save money if you don’t specify. It’s important to be specific not only the type of material, but the grade and other sub-types of each material.
- Send samples of your product to an independent testing lab in the United States to verify compliance – even if not required by product safety regulations.
- Have a recall plan in place in case you discover safety issues, or are ordered by a regulatory agency to recall your products.
- Use an on-site quality inspector – a representative you hire to inspect the manufacturing process to ensure the terms of the agreement are being followed. It’s entirely possible that the factory you contract with will further sub-contract the order to another factory – making it even harder to control the quality of the process.
- Pay special attention to high-risk items, especially those that could represent a shock or fire hazard. Inexpensive power adapters are sometimes missing important safety components designed to prevent injury, for example.
- Have your products shipped directly to you first, at least for your first shipment, and then ship them to Amazon. While it’s cheaper to ship directly from China and through your freight forwarder to Amazon’s warehouses, resist the temptation to save a few bucks. You need to know firsthand if there are quality control issues. You don’t want to find out through returns, negative reviews, and complaints to Amazon. Only when you’re completely comfortable with the supplier’s ability to deliver quality in bulk (not just a quality sample!), should you even consider shipping directly to Amazon.
While the Internet has made it easy to import your own product from China and sell it on Amazon, it’s important to step back and evaluate both the risks and rewards. Don’t fall for all the hype. Importing products from China is a complicated business and while some people make it look easy, failing to plan can cause you enormous headaches and financial loss.
By the same token, Amazon FBA can be enormously profitable. Following the steps I’ve outlined above will add additional expenses to your startup costs, but taking the time and effort to perform product due diligence and structure your business correctly will help ensure a sustainable, long-term FBA business with less potential headaches down the road.
Matt Thomas
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Dear Matt, In the 1980s I was working as a toy designer. One company I worked for, a small but phenomenally successful company, two years. The first year I was there, we went from 6 to 26 million in sales. The company was actually owned by the factory in Hong Kong and even though I and one other designer with engineers designed all the product, we were basically just a distribution hub for the factory.
I can attest to the fact that if you import product, you better inspect every box/package/item/label personally. In the warehouse they found one blister package, I remember, of a die-cast motorcycle, it had just the front wheel and fork with a couple curly hairs in the blister which was stapled upside down on the card. Finding treasures like this were not uncommon.
I’ve been considering selling with Amazon FBA and had already decided I have all shipments come to my house before sending to Amazon.
Great article! Great advice! Pay heed ye starry eyed sellers!
Thanks, Greg
Great article!
In buying items from a US company’s application that sells infant, children’s and other items, I did not know items were being imported/ shipped from China. The company failed to not only divulge this information, yet after ordering quite a few items, I received one that had me questioning the safety & testing of many other items I bought from this app.
This one item was a $1 item with a $1 shipping charge!
This item was pictured as 5 similar items, yet on another page, in fine print, it states that you only get 1 item! I contacted the seller via a system with a flipdown choice of reasons for contacting the seller (none of which applied), yet because it was essentially a rip off, this brought up more concerns.
Not only did I receive one item & not 5, as pictured, there was no documentation, not even a “Thank you for your order”, no ” How to use”, not a thing, except this item in an envelope and a clear plastic envelope inside that.
The app asked for a picture of the item, so they could see the difference between the actual item & compare to the ad apparently.
After I sent the picture of the item in the clear plastic envelope, I decided to take it out & have a look at it. Ink, dye it whatever was printed on the item came off on my hand, which begged the question, “Can this be safe for a baby?”, which had me looking up the rules for safety & questioning other orders I had placed via this app. I had ordered quite a number of items, and much more expensive than $1, yet this one item taking so long to get to me vs. others I had ordered, and I was a little more than a bit disappointed that I waited for so long to only receive one item (not the 5 pictured as a set), and waited about 3 WEEKS to receive a shorted item that wasn’t close to being a bargain at all, and was CLEARLY cheap quality!
I wondered about lead, cadmium & other toxins. What was used in this ink, paint, dye or whatever that came off on my hands so easily? Is it safe?
The retailer responded, saying I could return the item (at MY cost) for a refund, which further fueled my disappointment, as it CLEARLY would cost more to return it than I would get in a refund, so I was an unhappy customer! (This item realistically couldn’t have cost more than $0.02 to make in the US, and likely not a penny in China!) Had the retailer simply offered to send the rest of the set, I would probably not thought much more about it, yet wouldn’t have bought more, until the print came off… Then it became a whole different issue entirely!
It seemed strange that there was nothing printed on this item, other than the cute design.
When the ink or whatever came off, I wondered… “How do I know if this has lead or other harmful chemicals in it?”, so I started looking for this information online.
I discovered that children’s items have to be tested by approved labs, must be labeled with manufacturer, date of manufacturing, etc., which this $1 item was not, then I recalled the other items I bought from the same app & gave at a baby shower weren’t labeled either, read horror stories of lead, pthalates, cadmium & on & on, on items from China and that cotton was one of the, if not THE MOST pesticide-sprayed product on earth!
I felt awful, embarrassed & in some cases bad that I’d ever bought anything from this app, that, much like Amazon.com, lists unique, cute items I hadn’t seen elsewhere (not even on Amazon.com), and it is far easier for me to shop online.
This $1 item with $1 shipping now turned into me questioning many items I’d bought from this app.
A search found this app linked to a VERY unsafe & illegal cheap carseat someone had posted they had bought on the same app, that had a child been in it, there wasn’t only inadequate protection, but it could harm a child!
So now I’m wondering about those cute, old school wood toys I’d bought, a cloth diapering system (no one else had Dr. Who diaper covers & a wet/dry bag for keeping clean & wet diapers, clothing etc., which then brought up the question of licensing. Did that company have the right to make Dr. Who merchandise? Did it need to be authorized, and if so, was it?
I had friends years ago who had licensed Olympic collector’s pins (or so they thought – they even had paperwork from the manufacturer) yet when they flew to Australia for the event, and to sell them, they found their pins & money seized, and wound up spending their honeymoon/trip to sell pins at the Olympics, partly in a jail cell, as it seems the manufacturer had the OK & certificates for earlier licensed pins, yet not for that year, so be careful out there sellers!
Consumers & manufacturers need to also be careful, making sure certificates are up to date, AND unless making things with raw materials you grew or created yourself, invest in test kits to be sure items are safe for children & infants!
Reports of lead in toys from China are STILL unacceptably high, and some reports online state that more that half of the toys from China contain harmful levels of lead, mostly in paints, yet in many other products as well.
Other unsafe, toxic chemicals, such as cadmium, BPA, and the list goes on, are found FAR too frequently in items from China as well!
So I get to know invest in test kits to see if these items are safe. I DID ask Mama & the seller for
the Children’s Product Certificate (CPC) for this item and what had been an active exchange of messages via the app stopped cold… Not a good sign!
My guess is that neither the seller in China, nor the app owner here in the US, in California have papers for this item, and rest assured, I’ll be asking the other sellers I’ve bought from for their’s as well as asking in advance before buying other items for infants and children!
I know some companies have this information on their websites (usually manufacturers), yet this app has many, many items, clearly for babies & young children, yet I haven’t seen a single certificate, and if I have to wonder & ask AFTER I’ve bought something, I’m not as likely to trust it!
Sellers, PLEASE, PLEASE take the time & energy to do your homework on any manufacturer making items for you, or if you are simply buying items a manufacturer already makes for resale, be ABSOLUTELY SURE YOU ARE NOT IMPORTING TOXIC OR OTHERWISE HAZARDOUS BABY & CHILDREN’S ITEMS (or any others for that matter!)
Sadly, disposed of items can find their way into thrift stores, be passed down in families and otherwise reused, so be SURE that what you import is SAFE!
We aren’t saving anyone ANY money if a child gets harmed, lawsuits fly & so on!
TEST any products you have made or import! HAVE A CERTIFIED LAB TEST IT TO PROTECT YOURSEKF AS WELL!
WE ALL DESERVE QUALITY, SAFE PRODUCTS, NO MATTER WHERE IT COMES FROM! TRYING TO JUST MAKE A QUICK BUCK COULD NOT ONLY GET YOU SUED, BUT WORSE, HARM A CHILD, A BUNCH OF CHILDREN OR EVEN WHEN DISPOSED OF, HARM OUR SOIL AND WATER VIA LEACHING INTO THE SOIL!
Take the time to be sure your products are safe!
We all know if some labeling that has been made to happen because some people are simply irresponsible (such as “Don’t fold up stroller with baby inside”! Yes, I’ve actually seen that label, so someone did it!), yet reminders about small parts that could come off & be a choking hazard are simply good reminders.
Be especially aware of those things people can’t see, or if they can, most people would assume it’s OK, such as paint that contains lead, cadmium or other toxins, unsafe plastics made into toys, teethers, parts of clothing, toys, ice trays, baby food grinders, storage containers & the list goes on!
There ARE good manufacturers in China that make great products, yet the quality control over there is NOTHING like what we have here in the US!
Chances are taken, corners are cut, and many unscrupulous people will sell their garbage to make a buck, and be damned who it harm’s or kills!
Business people be aware that more than half of the children’s & baby products being exported from China TOXIC!
China certainly isn’t the only country exporting toxic junk either! Mexico has fairly frequently had lead-tainted candies, toxic cooking pottery, etc. These are often due to ignorance when using dyes in candy wrappers, glazes on pottery & so on, so it isn’t always done on purpose, or to dump toxic products, although it sadly sometimes, via logic/greed, most certainly is at times done on purpose!
Demand quality products with proper documentation to avoid pitfalls for yourself and your customers!
In my case, buying a $1 item & being shorted opened a can of worms, and as a result, these people are going to have to answer for allowing this to happen.
From what I read, they are considered the “Importers”, thus the company in California is going to have some explaining to do, and should the wood toys & other products I bought have lead or other toxins in them, they will have to refund & pay return shipping on all of it!
This app that allows sellers to sell without customers knowing these are almost, if not all, sellers from China that CLEARLY have been notified before about regulations they need to meet for the US market, have CLEARLY illegally imported dangerous & thus illegal car seats in the past, and now are apparently AGAIN ignoring laws re: safety testing & labeling of children’s products are CLEARLY up to no good, and this time it may be more than just financial loss… From what I’ve read tonight, this could mean jail time for endangering children!
If you import & sell items (or make your own), sell items YOU would use yourself & that YOU would feel perfectly comfortable with those you love most using!
Great article, BTW! TY!
Carol, thanks for your comment. So many entrepreneurs assume that importing from China is the only option. There are many, many great domestic manufacturers that are already used to complying with applicable US laws and regulations.
One great resource for domestic sourcing is ThomasNet:
http://www.thomasnet.com/suppliers/
Thank you for your comment. Would you please explain what you mean about ‘application’ in the following: “…In buying items from a US company’s application that sells infant, children’s and other items, I did not know items were being imported/ shipped from China”
How is Amazon getting away with this? Are there no regulations or are the entities in charge of consumer safety turning a blind eye?
I have noticed a huge increase in products being sold on Amazon coming from Taiwan in the past several years. There have also been news articles about counterfeit medications being sold from overseas. How is Amazon protecting the consumer when they have a disclaimer such as this on their website pages?
“Disclaimer: While we work to ensure that product information is correct, on occasion manufacturers may alter their ingredient lists. Actual product packaging and materials may contain more and/or different information than that shown on our Web site. We recommend that you do not solely rely on the information presented and that you always read labels, warnings, and directions before using or consuming a product. For additional information about a product, please contact the manufacturer. Content on this site is for reference purposes and is not intended to substitute for advice given by a physician, pharmacist, or other licensed health-care professional. You should not use this information as self-diagnosis or for treating a health problem or disease. Contact your health-care provider immediately if you suspect that you have a medical problem. Information and statements regarding dietary supplements have not been evaluated by the Food and Drug Administration and are not intended to diagnose, treat, cure, or prevent any disease or health condition. Amazon.com assumes no liability for inaccuracies or misstatements about products.”
What if you have no clue who the manufacturer is because the advertisement does not match what you receive in the mail? How do we know what we are getting if the product comes in a generic zip-lock bag with no label as to ingredients or directions for use?
In other words, from what I can interpret, Amazon, has declared that the company assumes no liability for the products sold on their site from third party sellers. Am I missing something with such a disclaimer? What happens when, as has been my unfortunate experience, that a supplement arrives with the seal completely broken? Who will assume responsibility? Is this a packaging problem? A shipping problem? A seller problem? A warehouse problem? If so, Amazon will not allow the consumer to write a “negative” review to warn other potential consumers.
What if the product is not the one shown as advertised on the website page? It would appear by Amazon’s disclaimer, that they are not responsible for that either.
What if the product has absolutely no labeling on it to describe the ingredients of the medication or food substance you are purchasing from the Amazon site? Again, their disclaimer seems to allow them to avoid responsibility.
How do we know if the medications, supplements, or food is safe from Amazon? We don’t. Do we even know where it was manufactured? We don’t. Do we know who is liable? No we don’t. If you say this is no different than buying from a brick and mortar store, well you are wrong. It is different because brick and mortar stores usually do not have obviously tampered with medications and supplements on their shelves. Yet with seemingly very little scrutiny of third party sellers on Amazon and how they sell and package their wares, receiving an opened bottle of medication is possible. Not only that, some prescription medications can make it to your door without a prescription, unless Amazon has cracked down on this. In 2014, Ford Vox wrote an article for Slate, detailing how consumers could purchase muscle relaxants, steroids, and prescription antibiotics from Amazon. How is this possible?
http://www.slate.com/articles/health_and_science/medical_examiner/2014/05/amazon_illegal_drugs_muscle_relaxants_steroids_prescription_drugs_delivered.html
A brick and mortar store is not going to be able to sell you these types of medications with no prescription, at least not with the ease that Amazon seemingly can do.
Why is Amazon taking such risks with their customers? This type of business transaction, in my opinion, is unethical, dangerous, and I would think…illegal. I am not a lawyer so I make NO accusations in my comment. I am simply asking questions that I feel any customer who uses Amazon would want to know.
This is just my opinion but maybe Amazon should focus on customer satisfaction and safety instead of drifting off into never-never land of medication carrying drones.
The foundation of good business practices is trust. In my opinion, Amazon is making it far more difficult to trust them. I hope things change for the better.
Thanks for informing us about this useful information. It is really important to know about the pros and cons of the business.