Buying from China: Tips and Secrets

More and more companies are buying their products and parts of China. This month we spent weeks interviewing SMEs who have been successful in buying from China and present in this article tips and secrets to buying from China.

Sources for goods in China First establish who the supplier is! It seems obvious but there are many routes to buying products in China through agents, trading companies, wholesalers and factories or any number of “back door” sources. Agents operate on a commission basis whilst trading companies include costs in the quoted price, most wholesalers and factories do not have export approvals so have to operate through a registered agent or trading company to export to you at all.

Many SMEs tell us that people that they meet in China who are not the owner of the business has shown interest in either setting up on their own by “stealing” his employer’s customers and product designs or simply doing their own deals on the side through friends, contacts or family. On the internet there are many scams and dubious “traders”. But accepting that you are lucky or diligent enough to fnd a legitimate agent/trading company, you will fnd that Chinese business ethics are very different. Most Chinese believe that “cheating” is the name of the game for people in business.

In street purchases in China you may well think that you have done well to reduce the price frst quoted by 20% or more (often the normal negotiating “add-on” is >50% in street markets) this fgure can be very much higher if you do not speak Mandarin. Whilst the situation may be quite a bit different for more formal purchasing the principals are much the same. Then there are all the “extras” like packing materials, printing and minor changes, inland costs etc which can be used to hike the price back up, or a possibly a worse scenario is the practice of cutting corners on materials and quality to regain the lost margin.

Having a good feel for the all inclusive price from a number of suppliers for the specifc product you want gives you the purchasing power to negotiate and buy the right product from your selected supplier at a reasonable price hopefully without any “extras”.

Payment terms are more often than not 30% down payment with the residue on completion of manufacture. But beware the requests for payment in full with a money order through Western Union, these payments are to individuals and generally are not traceable once made.

Are the prices quoted ex-works, FOB, CIF, delivered warehouse – what has been agreed and who pays and at what stage? Who raises the shipping documents, packing list and commercial invoice and will these documents enable you to clear the goods at the port of destination, assuming the goods exist in the frst place never mind whether they are of merchantable quality when they arrive?

Developing long term relationships with a few suppliers who you know well pays dividends. Getting to this point with a new supplier needs extreme caution no matter what their pedigree until a personal relationship has developed but even then be careful. The supplier’s staff may also be offering your products to your customers or competitors at lower prices if they can fnd out who they are.

Products Is there a specifcation? Has this been agreed with your supplier. Do they actually understand the specifcation?

What sort of things do you need to specify? Have you included labelling, marks, packaging including quality of cardboard etc as well as materials or components to be used, type and colours of paints and fnishes, instructions in a language suitable for your client.Also consider the tests to be conducted during manufacture and on completion. Does the supplier own the intellectual property rights of the product? Don’t believe you can import well known international brands unless you intend to buy them from the brand owner. Gucci, Samsung or Philips or any owner of a well known brand certainly won’t allow a Chinese supplier to sell their branded products at low prices through the back door! China is probably the world’s largest source of fake or pirated goods with well known logos and branding on packaging that are simply copies or worse still just a logo stuck on a similar looking product.

Not only will there be little or no warranties but worse you risk serious legal action and possibly a criminal conviction if you cannot show proof of ownership of the brand name or an agreement exists from the brand owner when you import.

China exports to countries all over the world and to many third world countries and of course supplies the Chinese domestic market where quality standards are unknown or irrelevant. So it may not be a matter of cheating you they may simply just not know what is needed to comply with your standards.

Likewise if they have not exported before they may have no idea how to comply with Chinese Export control regulations covering such things as foreign exchange, tax, licensing etc so whilst their intentions may be good the transaction may fail as they are unable to perform their part of the contract. This could mean that they can’t convert the foreign currency at a sensible rate, they misunderstood the costs and procedures for exporting the goods through a Chinese Trading company including transport, customs clearance, documentation, tax and duties etc. These things can slow the transaction by weeks or it may become impossible to perform the contract at the price agreed and the transaction fails. But you have paid your money and either the supplier has it or it is still with a Chinese bank who won’t release it.

Quality ISO 9000 in my view is about applying common sense to the supply process of specifying and checking that what you order is what you get and is the basis for best practice.

If you don’t specify what you want your expectations are unlikely to be met….. crystal balls don’t work too well even
with the internet to help. Especially so when one party speaks English and the other is battling with Mandarin instead of his local Chinese dialect probably through an interpreter and with a very different technical and cultural background.

Products need to be specifed in detail and cover such aspects as packaging and labeling, it then makes sense to get someone to check that what you have specifed is understood and produced by the supplier before you release the fnal payment.

Suppliers in China, like anywhere else, come in many shapes and sizes, from huge State Owned Enterprises (SOEs) Joint Ventures (JVs) with Western and/or Asian partners, private companies, Wholly owned Foreign Enterprises (WFEs) and family businesses. It’s not going to beneft you by going to the biggest state owned group of factories in China if you intend to order only a few cartons a month. Likewise the small family business won’t cope, though they may say they will, with 20 or 30 containers a week.

The Chinese Way One of the greatest diffculties for newcomers involved in importing from China is coming to terms with the fact that doing business in China is very different to doing business elsewhere. The thinking processes, ethics, morals, life experiences, expectations, culture, politics, laws, education, and government involvement in everyday business life is very different and not at all easy to predict.

In many factories in South and Eastern China shop foor employees are mostly migrant workers from poor rural areas. They speak their native language and may struggle to communicate with the city dwellers around them. Their living accommodation, food, clothing, recreation and welfare, such that it is, will normally be provided by the employer. The wages paid in cash are usually very low as a result. Workers may only travel home once a year. Normally there is no schooling available for migrant worker’s children in many of the big cities so money is sent home where the family is based.

Consequently the enterprise cost basis is very different and would be considered more like an overhead than a variable cost. It is likely that the success of the factory, if of any size at all it will have direct government involvement, and may well be measured by the number of people employed rather than the fnancial performance.

Branded Products Many very well known, high quality branded products are made in China. Some of the largest and most successful manufacturers of Chinese products that are best known in the world are often made by Joint Ventures or Wholly owned Foreign Enterprises.

These products are manufactured to very high standards in factories with professional management and high levels of investment in plant, people and processes. The products are world class and sold and marketed by the Brand owner.
These Branded products are not legitimately available to non-approved importers and if they are offered to you in China they are undoubtedly fake copies or stolen or simply similar product with a famous logo attached. Chinese copyright law exists but has not yet caught up with the thousands upon thousands of companies that copy other’s products either unsolicited for domestic or export consumption or as requested by foreign importers.

Don’t be fooled ….. it is illegal to import or sell these products in Europe and a criminal offence with severe sentences and penalties

Summary The future for manufacturing is in China. Business is done very successfully here by resourceful, competent very able and very willing business partners that really want to make it happen for you and themselves in the long term and on a reliable and successful basis. Just don’t throw away common sense with your enthusiasm. Others made it happen so can you!