Finding a supplier in China can be a difficult process. You may have heard horror stories or perhaps you have simply created them up in your head. Yes, bad things can happen as manipulative and unethical suppliers exist in every country. Continue reading to eliminate much of the risk that is traditionally involved in seeking out a reliable and trustworthy supplier in China to secure long-term success for your business.
1. Evaluate Your Business Needs Before You Begin
One of the greatest challenges in finding a reliable Chinese supplier is simply that most businesses want to keep their trusted sourcing channels to themselves. These businesses want to maintain their competitive advantage and not share it with everyone. They also do not want to deal with increase lead times, face shortages and missed completion dates due to their supplier’s increased workload from additional customers. It does make good business sense for businesses, however it is not an ideal business strategy for you. Do not fret. As long as you are willing to put in a bit of work, learn to know what to look for, and have a plan of attack, you will find your ideal Chinese sourcing partner.
Before you begin your search you should evaluate your business needs. Think of this like creating a business plan for your supply chain. The following are just a few items you should consider before you begin:
- What is your budget?
- When do you wish to begin sourcing?
- Do you have any local contacts in your network?
- Are you seeking a custom-built product or a mass produced finished good?
- How will you manage the process internally and on-site?
- Who will create your labels?
- Will you supply the packaging?
- Is the location of the facility a concern?
- Do you want to be responsible for shipping?
As you can see, you must consider many aspects before you even begin your supplier search. The greater your understanding of your business needs before you begin, the easier the process will be to find your ideal partner.
Know your commodities and production needs. Determine whether or not you want customised products made from raw materials or if you are looking for mass-produced finished goods that you can label and package for your own needs. This will greatly influence the type of supplier you look for. For example, you can choose from third-party suppliers or a family-run business and manufacturing methodologies or an assembly process.
You should also consider the experience of a supplier. Yes, it is crucial to find a supplier with proven experience and reputable feedback. It is not necessarily essential that the supplier has previous experience in your exact product line. Obviously, it would be advantageous if they had such experience. It is far more important to evaluate whether or not they have the capacity and capability to supply you with exactly what you need. Keep in mind that all products in China are produced regionally. This means that certain regions in the country are dedicated for producing specific items. For example, technology products are produced in one region in China; whereas, clothes are produced in another.
Perhaps most importantly, if you have any intellectual property (IP) concerns, you should register them in China prior to beginning your search. Do not contact any supplier until you have completed this step. If you are able to, register your IP in a number of categories to cover your basis and to prevent competition. And, before you begin, be prepared for cultural differences.
2 – Understand the Local Chinese Business Customs
As with doing business in any country, you should always learn local business customs as a sign of respect and to create positive working relationships. Making the smallest bit of effort can equate to landing the supplier of your dreams. You may be able to get away with not learning local customs of all traditional developed Western countries, however you cannot get away with trying to do business like a Westerner in China. Here are a few important differences and tips to note:
- Be on time for all meetings and engagements.
- Business cards should have English on one side and Chinese on the other.
- Business relationships are formal. Humor is often lost in translation and best to be avoided.
- Losing your patience is also seen as losing face as is showing signs of anger and frustration. Be patient, calm, and rational at all times.
- Expect pauses and long silences during meetings and negotiations. Again, be patient.
- You may not meet with decision makers the first few meetings. Be prepared for this.
- ‘Maybe’ or ‘we will see’ are terms used to show dissatisfaction and disagreement as saving face, or rather to keep their good reputation and honor, is an important part of their culture. Confrontation is typically avoided.
- Giving gifts is common under warranted circumstances and will always be reciprocated. Do not give flowers, clocks, or instruments that are capable of cutting as gifts.
- Accept and give gifts and business cards with both hands.
- It is perfectly acceptable to not eat everything on your plate, however you should accept all food offered to you.
- The number 8 is lucky and the number 4 is unlucky.
If you would like to make a lasting impression, learn several phrases in Chinese. At the very least, you should learn greetings and salutations as with any country you visit. When you do make an official greeting, shake hands firmly. Do not aggressively and slightly nod your head. Avoid any additional physical contact after your initial introduction. A simple handshake is appropriate rather than touching with both hands or putting your arm around their shoulders. Physical contact should be avoided.
Another key point is to be willing to make concessions in negotiations as they will negotiate with humility and modesty. It is then expected that you will make concessions as a sign of respect for their humility. You must be willing to make it seem as though they have won the majority of concessions to secure their business during negotiations. Keep this in mind when you are creating your negotiation strategies and tactics.
Just like any business interaction in any country, you will be seen as the representation of your country and your business. Your behavior will be seen as a direct reflection on your company. You will be considered the determining factor as to whether or not they wish to do business with you. Both reputation and relationships are highly regarded in Chinese culture. You should always act in a polite, gracious, and respectful manner when conducting business in China.
3 – Know the difference between Manufacturers, Traders, Agents, and Sourcing Service Providers
It is important to note that you have options when it comes to the type of supplier relationships. Regardless of the type of supplier relationship you seek, you should always perform the appropriate amount of research prior to signing any contracts. If you do choose to use a trader, agent, or sourcing service provider, you should perform sufficient due diligence on these options just as you should for the supplier themselves.
If you are sourcing your parts or finished goods in China, you are likely doing so to save money. The best way to save the most money is to establish a direct relationship with a manufacturer. These suppliers may have a large manufacturing facility serving many clients or a smaller family owned business that is able to handle more customizations with fewer clients. Direct manufacturer relationships may save you money, however it may also possess the most risk and the most work.
Traders are often intermediaries who connect finished goods from a manufacturer with a buyer. These individuals and companies typically markup the price of the goods like a wholesaler and will often vary in reputation and connections to reliable suppliers. You should only seek out reputable traders with a number of supplier connections to find the best products for your needs.
Hiring an agent may reduce your profit margins, however it is one of the best ways to minimize your risk. Reputable agents often charge 3 to 10 percent of the purchase price and will happily handle all business on your behalf. Be very careful with an agent. While it may be appealing to allow them to handle everything as they are the local expert, you do not want to lose control of the process. You should still be heavily involved at all times and ensure the agent is representing your best interests at all times.
A sourcing service provider offers end-to-end business services such as finding reputable suppliers, negotiating price, managing the supply chain and quality control, establishing logistics channels, and much more. These individuals are truly a one stop shop, however they are also the most expensive of all options. Again, be certain to be involved in the process to maintain control of your business. You might also consider online sourcing platforms.
4 – Search for Business-to-Business (B2B) Marketplaces
B2B sourcing platforms are growing in popularity throughout China and Western businesses. Keep in mind that these channels often pose higher risk. What is a B2B sourcing platform? B2B sourcing platforms vary greatly in their service offerings. Some website simply offer a number of parts and finished goods from which you can purchase. Other websites offer additional services such as to match suppliers and buyers for more in-depth relationships and complicated needs. Some sites offer even more services and take at least some precautions to protect the buyer.
Sourcing platforms such as Alibaba can be a great way to find potential suppliers, however you should know what to look for during your search. Most of these sites have forums where other users publish their experiences and provide tips. Just like with all online reviews, consider the source of the information. It is typically quite easy to determine if a post is legitimate or not. If a supplier has 10 positive reviews and 1 negative review, they are likely worth your consideration. If the opposite is true, you may want to move on to another. Also, some sites offer a blacklist of suppliers that have been banned from their website. This is a good place to look for suppliers you find in search engine results.
Some sites offer some protection and verification. You might find sites that perform credit checks while others provide supplier assessment services. Some may only verify that a supplier is an actual business. This does not mean they are endorsing the supplier. You still need to perform additional research. These points may not provide guarantees, however they are all great starting points. Also, it was recently announced that three Chinese businessmen billionaires plan to launch a new sourcing platform. You should be prepared for some significant changes in the Chinese sourcing industry in the next few years. For now, be sure you understand how each site works before you begin using them as a way to minimize your risk.
5 – Learn How to Minimize Your Risk
Minimizing your risk is more than simply being mindful of scams. You must consider all aspects of your business practices to ensure that you are protected in every way. You can do this by establishing your true production costs, protecting your customer image and knowing the signs of scams.
You should consider all of your costs. While it may be significantly less expensive to use a Chinese supplier, do not forget to factor in all additional costs when you are creating your forecasts and budgets. Consider all additional expenditures such as translating, legal fees, transportation, distribution, commissions, agent fees, and much more.
All documents must be in English, or your native language, and Chinese. Do not sign anything that is only written in Chinese and never agree to something in an email that has been written in Chinese and explained to you over the phone or video chat in English. Make sure to always correspond in a language you speak and read fluently.
Even if the contact of your potential supplier speaks English, you should always ask them to recap everything you have discussed to be 100 percent certain that they understand. If you do not follow this step, your misunderstood words could be passed along to decision makers.
Some of the more well-documented and notable risks include scams. You can be scammed in any number of ways, particularly if you do not visit the site yourself. Here are some warnings and tips to minimize your risks and scam prevention:
- Check sites such as www.ripoffreport.com.
- Perform a simple search engine check for the supplier name and the word scam.
- Phone the number on the website and ask for your contact.
- Ensure that the project manager with whom you will be directly working is fluent in your preferred language
- Look for blacklisted suppliers on supplier review sites.
- Pay for a local factory audit and a background check.
- Do not send money to a personal account for any reason only to the bank of a business account.
- Most scammers are individuals and many are well-educated and speak English very well.
- You cannot typically buy name brands such as Apple or Nike directly from a manufacturing facility in China. They have strict contracts.
- If a deal sounds too good to be true, it probably is.
- Avoid buying fakes and knockoffs.
- Be mindful of refurbished goods being sold as originals or technology downgrades
- Do not purchase products claiming to be produced outside of their production region.
- Ask for certifications.
- Reputable suppliers should respond to your inquiry between one and three days.
- Request audit statements from a reputable Chinese accounting firm to verify the current state of their finances in the event that you will be required to recoup costs for any number of reasons.
Another risk is the potential fallout from clients by not performing your due diligence in advance. Consider the tragedy in Bangladesh when a building collapsed killing thousands of workers in horrific working conditions. Some of the businesses involved in this tragedy were also victims. The businesses had no idea their clothes were being made in such conditions. Before they signed any contracts, they visited sites they believed would be home to their manufacturing process. They were shown a state-of-the-art facility, however all goods were manufactured at another severely inferior location. This is just one reason you should always be involved in all aspects of the process. It is also a good idea to perform quality spot checks yourself or to hire a local agent to randomly check on the facility from time to time.
A similar scam that can occur is a samples scam. Some unethical suppliers might outsource the samples to a higher quality supplier and ship your final order with a lesser quality product. To avoid such an instance, be sure to take photos, keep the samples, ensure your contracts are airtight in regards to disputes, have an insured payment methodology, and hire an inspection company to review the products prior to sending any funds.
You are never without risk when selecting a supplier regardless of the country. Be certain to perform detailed due diligence prior to making any decisions.
6 – Be Thorough in Your Research
This is the part of the process that may challenge your patience and cause you frustration. It may take some time to find the ideal supplier, so be certain you plan accordingly. You do not want to put yourself into a situation where you are desperate to find a supplier. This is one of the fastest ways to be taken advantage of in negotiations and to make poor choices in your partnerships. To begin, make a checklist of all attributes you seek in a supplier that are essential to successfully completing your strategy and list them in terms of priorities.
- Find out about the capabilities of the supplier. How big is the facility?
- How many existing clients do they have?
- What is their expected lead time?
- Do they have the technology and staff to manufacture your goods?
Do not be afraid to ask for references and to follow up with previous or existing clients. This is one of the best ways to verify the level of quality, service, and reliability you can expect from your supplier. Do not forget to check LinkedIn groups for public postings about suppliers. You can also check local Chamber of Commerce sites in China to verify businesses and to check for known illegitimate businesses. You can also check social media channels for reviews and feedback, but do not take such channels as your sole reference.
Search business directories and professional organizations to find positive or negative reviews pertaining to the suppliers you like best. Reach out to the local expat community. You will find a number of expat community websites that may be more than happy to help you and they may have a list of suppliers they endorse personally. This is also a great place to find reputable agents, translators, interpreters, and other business professionals who know both the way of business in China and your home country. Again, look for such professionals with feedback rather than to blindly trust someone who is simply looking for work or advertising on the site.
Keep in mind that your preferred suppliers may not have the capacity to take on new clients when you are ready. Establish a timeframe for when you would like to begin and create a list of several preferred vendors. Update this list with great frequency in case you must end a supplier relationship at any time.
7 – Track Your Research and Exchanges
Maintain a database with all information pertaining to each supplier you contact including their website, contact details, and detailed notes from each meeting. If you use a CRM application, add them as a supplier and track all exchanges in your CRM or simply create a highly organized spreadsheet for quick reference. Today, it is easy to find inexpensive and free CRM applications. A spreadsheet is a convenient way to compare all suppliers that you contact at once.
Here are some examples of areas to manage for each supplier throughout your search:
- Name of Business
- Contact Persons
- Phone Number, Email, Skype, etc.
- Working Phone?
- Email Response Time
- Years of Experience
- Previous Clients
- Product and Production Capabilities
- Additional Notes
Managing these details in one place will make it easy to review them at any time and to compare one supplier to the next. You should continue to update the details in your CRM or the spreadsheet after every exchange, any time you hear of a new potential supplier, and if you come across a potential source in research or a visit to China. You never know when you may require a new supplier.
8 – Establish Payment Methods and Expectations
Your expectations regarding payment methods should be set high. It is important that you consider the complications and risks behind each possible payment methodology. As previously mentioned, you should only send a payment to the business account at a bank and never to personal accounts, Western Union, MoneyGram, Paypal, etc. Keep in mind that some reputable suppliers will not charge you until you receive the product; however, not all are so generous.
In some circumstances, particularly in new relationships, you may be required to make a deposit of good faith. The supplier may actually use this money to produce your products. In all circumstances, particularly during the first exchange, you should try to only pay with a bank letter of credit that will ensure that both parties are protected. A letter of credit will guarantee that the buyer will pay for the goods and that the seller will provide the products by a specific point in time in a previously agreed upon condition. It is a win for everyone involved.
9 – Visit the Site and Know Local Trade and Employment Laws
Once you establish a relationship, you might consider alternative forms of payment. You might consider an escrow payment with a reputable third party or you could even pay using credit cards, wire transfers, online transactions, etc. These are often considered high risk payments in regards to potential disputes and you are unlikely to recoup your loss in such instances with these payment methodologies if something were to go wrong. If you trust your source, your risk is far less.
You should always visit the supplier site prior to signing contracts. The trip may be costly, however it could be far more costly by not doing so. If you simply cannot manage the funds, hire an inspection company to do one for you. You should always try to visit the site as a priority. You will greatly reduce your risk and doing business face-to-face in China is more favorable than having a strictly online relationship.
Before you visit a site, you should be familiar with local trade and employment laws so that you are comfortable with what to expect in working conditions. What is required by law in your home country may not be required by law in China. If it is an aspect that is particularly important to you, it may be possible to negotiate it into your contract, however it is most likely that what you see is what you get.
Do not forget that you may face potential customer resistance at home by selecting suppliers with poor working conditions as the support of fair trade and socially conscious consumerism continues to grow. Ask to take video of the facilities and photos of the employees to share on your social media channels and website to gain consumer confidence and to demonstrate your commitment to transparency. It is simply good business today.
10 – Be Ready To Move Forward
You cannot expect your supplier to be ready to begin and not be ready on your end. It will be bad business and you could cost them money which may directly affect the quality of your end product. This is no way to start a business relationship. Have your entire supply chain in place prior to the start of production including freight forwarders, packaging, labels, etc.
You should also be prepared to provide the supplier with realistic commitment figures. If you promise them a contract for X amount and then reduce the number significantly, the product quality may suffer because they will be forced to cut costs to meet your order based on your previous promises. The profit margins are slight in China and any misrepresentation on your part could directly affect the overall satisfaction of your end user.
Finding a reliable supplier in China is quite feasible when you know what you are doing. Be certain to know your needs before you begin, perform rigorous due diligence, protect yourself from unnecessary risk and scams, and be prepared on your end before the start of your agreed upon production date and you are certain to have much success in the Chinese market. To your success!