Tips for Sourcing in China

by | January 29, 2016

Tips for Sourcing in China

by | January 29, 2016

China is still a very interesting choice to consider sourcing your products. Even though labor costs are rising quickly, China has a huge labor pool and well developed infrastructure. Combine this with a big market and it is easy to see potential. Therefore, this article will give the readers 6 tips for sourcing in China:

1) Develop a plan of approach

A good beginning is half the battle. Especially in China, where things tend to go different then the rest of the world, making a step-by-step plan of approach can be very beneficial. This makes you think critically about the goals, but also about the steps during the way. Having a plan of approach does not imply that deviations are impossible; it rather means that a logical sequence is followed and the long-term goals remain apparent.

2) Put time and effort in finding the right supplier

Time and research is required to find the right supplier. Searching a potential supplier on Alibaba does not imply that they are credible (even though Alibaba has a list of banned members). Moreover, meeting a potential supplier at an exhibition or during a trade-delegation does not imply that they are qualified to do business with.

It is important to do a background check, or order to see if they really produce and are not an intermediary. This includes visiting the supplier locally, as it is crucial to see where and how products will be manufactured. Therefore, always ask to see the production line while working. Also, it is advisable to check whether the supplier already exports to other (Western) countries. This implies that they negotiated deals before, and is more familiar with the logistic requirements and/or custom procedures. Also check if the supplier already has obtained the necessary certificates required for the products to be imported into Europe, the US or other countries outside of China.

It must be noted that it is rather difficult to conduct a financial background check on a potential supplier. That is why looking at the previous track record, client references and reputation is so important.

3) Register your intellectual property

We have elaborated on this before, but cannot stop stressing the importance of registering your trademarks and intellectual property in China. While doing this, no Chinese entity registration is required and the costs of registering IP in the relevant categories are fairly low.

Registering your IP in China implies that no one else can manufacture, sell and offer for sale your product in China without your consent and this will prove to be a long term benefit. Imagine that your supplier registered the IP on your products in China. The moment you start selling in China, your own supplier can sue you for breaking the intellectual property laws. Surely, he will hold you at ransom, one day you decide to ditch him and chose another partner! Please make sure that you avoid potential risks and make sure to register. Even if you are currently not going to sell in China, and merely source, it is a good and easy thing to do for any future Chinese endeavours.

4) Establish a good contract

Once you have found a supplier you want to do business with, you are arriving at the point of actually negotiating a contract. This includes, but is not limited to responsibility for customs, the manufacturing price, contract duration and last but not least, payment terms. Never agree to a deal which requires paying 100% up front! When entering the contract negotiation phase in their local production plant, always bring your own interpreter. The difference between a translator and interpreter is that the actual meaning sometimes does not get conveyed in a pure translation. You do not want to be dependent on the translations of someone who might not be at your side during the negotiation.

Everything should be defined very clearly and you must make sure that the supplier understands what is expected of them and what it should deliver. Make sure to include inspection rights in the contract. Please consider not only the local wishes of your potential supplier, but also Chinese laws and regulations. Therefore, the contracts will be in Chinese.

Let a Chinese expert look at the contracts, making sure all proper rights and liabilities have been covered. If you want full protection against your supplier possibly selling products, trade secrets and/or product designs behind your back, an OEM agreement is the way to go.

5) Manage your relation

With nearly everything in China, managing from a distance is hard. The distance is not only measured in geographical distance, but also cultural distance. Both can be overcome by regularly visiting the supplier. This will increase your credibility and certainly builds long term commitment. To manage the relationship, make sure that you clarify what you expect and stick to your expectations.

More importantly is the fact that you want to stay with your supplier as long as you are satisfied. Abandoning them to save some money elsewhere can become a costly process.

6) Make sure quality control is arranged

After having concluded all negotiations, and having signed all contracts, actual production and shipping starts. Even though this reputation is fading, Chinese manufacturers are still prone to delivering lower quality over time. A supplier having ISO certification is not enough, and cannot be depended upon. Chinese suppliers like to increase their margins by switching to cheaper materials. Bit by bit, the quality is lowered until you will face a real problem.

In order to avoid this, make sure that you hire your own quality control team checking in regularly. This can be during the production process or before customs. Make sure that your contract includes that you have the right to do random quality controls.

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