In its second-largest acquisition, Amazon buys the company for $970 million.
Despite the distance, North American e-retailers find ways to get to know foreign suppliers.
Global trade is a lot like online dating. Retailers can view pictures, ask detailed questions and search the web for dirt or praise on potential business partners, but they will never truly know what they are going to get until they see the product in person.
Still, as a good mate is worth several awkward dates, a good overseas supplier is worth taking the time to find, many web retailers say. And it does take time. Beyond the obvious barriers of culture, time differences and language, there are numerous not-so-obvious pitfalls. But retailers that navigate the potential snags by asking questions, paying attention to warning signs and using supplier vetting tools available online can save significant money by sourcing from overseas while also getting access to goods not readily available in the United States.
Searching the globe
More and more U.S.-based retailers are realizing the benefits of gathering supplies from all around the globe. Alibaba.com, a China-based site that connects factories in China and other countries to retailers and distributors worldwide, says the United States ranks as the top country in terms of buyers, with 4.6 million registered buyers in March, up 43% from a year earlier. An average of 116,000 U.S. buyers joined the global trade marketplace each month in 2011, and the U.S. accounts for 17% of Alibaba.com buyers.
For Jane Ivanov, an Alibaba client and president and CEO of Eve Alexander, sourcing from overseas was a way to get her business idea off the ground with very little cash. Armed with $50,000 and dared by her husband to start a business with such a paltry sum, Ivanov set off to find suppliers who could make stylish maternity and nursing lingerie.
"I was pregnant with my first son," Ivanov says. "I was looking for pretty undergarments for women who were expecting, and I couldn't find any. My husband dared me to do something about it, so I did."
After reading a magazine article mentioning Alibaba, Ivanov turned to the marketplace in 2005 looking for manufacturers. To attract cash-strapped entrepreneurs like Ivanov, Alibaba is free for buyers. It makes most of its money by charging sellers an annual fee between $2,999 and $4,711, which, after some checks, gains them the status of a Gold Supplier and some other benefits, such as preference in search results.
Alibaba offers a free option as well, without the perks, says Linda Kozlowski, director of global marketing and customer experience for Alibaba. Some suppliers, particularly those who offer rare goods such as Peruvian alpaca, don't have much competition on the site and don't need to pay, she says.
Ivanov eventually found a manufacturer in Hong Kong and put $30,000 of her start-up cash toward her first batch of inventory, spending the rest on marketing, a photo shoot and her web site.
Dollars and sense
Ivanov, like many other entrepreneurs, had to look for manufacturers outside the United States to get the product she wanted for the money she could pay. A bra, one of her top-selling products, can have up to 42 separate components, she says. Creating her product was far too labor-intensive for her to afford to pay a U.S.-based manufacturer.
"You can't produce a good quality bra in the U.S. or Italy for less than $40 to $50," she says. A search on Alibaba.com shows bras from Asian manufacturers can range from $3 to $20.
Alibaba says many buyers save more than 30% in manufacturing costs by sourcing overseas, but says those figures vary across buyers and product categories.
Susie Wang, cofounder and owner of organic cosmetics company Purity Cosmetics Inc., says using the Alibaba Marketplace helped her cut out a broker, saving her about 50% from what those intermediaries charge to track down suppliers. Wang, who sources lingonberries from Sweden, Kona coffee from Hawaii, shea butter from Africa and packaging from Shanghai-based Blopak, says she has no choice but to source from around the world because of the ingredients she needs for her 100% Pure product line. She says Alibaba helps her get quality goods for less money.
"Alibaba gets us straight to the factory, straight to the farms which then lowers our costsÑwe don't have to go through middle men," says Ric Kostick, Wang's business partner.
The company manufactures its products in a factory in San Jose, Calif. "By keeping our packaging prices down we can keep our market share and give jobs to people in the U.S.," Kostick says. Purity Cosmetics employs more than 50 people.
The company offers more than 500 cosmetic products and has sales of around $20 million, roughly 35% of which are online. It has two stores, in San Jose and Berkeley, Calif., with plans to open more and to widen distribution. It recently bought a new 143,000-square-foot headquarters in San Jose.
Global sourcing does involve risks, however. In fact, Alibaba disclosed last year that 2,300 suppliers, mostly offering hot consumer electronics items, were taking orders and not delivering the goods. Alibaba's CEO resigned soon afterward, and the company put nearly $2 million into a fund to compensate defrauded buyers.
Ivanov, who was born in Russia and has an undergraduate degree in international studies from Brigham Young University and a master's degree in marketing from Indiana University, conducts thorough background checks on potential suppliers. She asks for references and calls suppliers' customers, being careful to contact retailers outside the United States that are not Eve Alexander competitors.
Cautiously vetting suppliers is important on a site like Alibaba, which houses 2.4 million storefronts that span suppliers in 46 industries from 240 countries. And Alibaba has developed tools to help buyers find reputable sellers.
A closer look