If you are a small or medium size enterprise (SME) planning on purchasing products from China, this brief summary based on the experiences of a client of ours will help you understand what you need to know.
Since 1990, global Tier 1 companies have led a Buy from China movement for components and finished products, which has led to China becoming an unprecedented contributor to the supply chain of today’s global economy.
China has the largest population on earth, representing 19% of the world’s people. With highly developed infrastructure and manufacturing capacity, this country has an enormous production capability.
Purchasing directly from Chinese suppliers is complicated, however. Unlike SMEs, large multi-national companies deal directly with Chinese manufacturers because they have the infrastructure and personnel to handle purchasing and export documents. Most multinational companies have offices in Hong Kong or mainland China with local staff who negotiate with suppliers directly in Cantonese (HK) or Mandarin (Mainland China).
Doing business directly with Chinese manufacturers is very different from business anywhere else in the world. Failure to understand Chinese business culture may end up with you insulting your prospective supplier without knowing it.
Because of this concern, the majority of SMEs use Foreign Trade Agents (FTAs) who search out best suppliers, negotiate pricing, and handle purchasing and export documents. Some FTAs may specialize in a specific area of expertise or industry.
Regardless of which sourcing option you choose, take the time to understand general Chinese business culture and etiquette. It will provide you with a better understanding of how to do business in China and a more positive business experience for both you and your prospective supplier.
Honing your negotiation skills is a must. Price negations for lower quantities can be exhausting, taking days or weeks to resolve. Once you have settled on price, make sure you factor in costs for export documents, duties, brokerage fees, taxes, etc. In some cases, product quality and packaging may be compromised as a result of lower price negotiations.
Requesting pre-production quality control product samples prior to ordering is highly recommended. Also, request copies of the supplier’s quality control certifications such as ISO 9001:2008, factory audits, and production records to check for manufacturing compliances. Unless you have your own personnel on-site to inspect products before being packed into cartons and loaded into a shipping container, consider obtaining these documents.
During factory visits, inspect the quality control procedures and documentation. FTAs that specialize in specific market segments have the expertise to select the best Chinese manufacturer for your requirements. They also serve as an intermediary and translator for any disputes that may occur.
Due diligence is required before working with any off-shore supply chain. It is best to invest some time and money in several factory visits and dinners with your prospective Chinese suppliers. Do not underestimate the importance of establishing guanxi with your future partners for a successful supply chain strategy.
About the Author Russell Kelly is President of APC Filtration Inc., an ISO-9001-2008 certified manufacturer providing over 34 years’ experience in custom air filter manufacturing and testing for global original equipment manufacturers. With manufacturing and testing operations in Canada, the United States and China, we provide our clients with cost effective manufacturing and logistics for all your filter requirements.