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Import from China: What You Must Know to Ensure Success

February 2, 2011 Leave a comment

By Sara Cheng

China has been the obvious procurement destination in the past 2 decades. However, import from China is not always a happy story. Foreign businesses must bear in mind some must-knows and take necessary actions before and /or when sourcing from China:

 Check local import tariff and other trade barriers such as quality standard and international certification requirement for import from China. With rising trade protectionism globally, it is highly recommended companies do a careful cost and benefit analysis before looking at the import option. High import tariff and other trade barriers may eat up all potential profit gained from import. Also CE, UL or other accreditation and/or requirement on manufacturers may apply for certain products.

 Decide on going directly to manufacturers or dealing with trading agents. Though buying directly from Chinese manufactures may secure a better profit margin and ensure direct communications with suppliers, lots of established Chinese exporters operate on a large manufacturing scale and are mostly committed to mass production and “big” orders. Hence, it may be worth going to a trading agent who can combine small orders, secure a better deal and conduct pre-shipment inspection.

 Qualify suppliers before you place orders. China has an old term “suitcase company” which refers to one-man-band companies and in some cases scammers. Today there are still suitcase companies under the cover of glamorous corporate websites. Hence a background check on the company’s legitimate status is a must before you place your 1st order to the Chinese company. China does not have a central point where people can check scammers or legitimate status of all businesses, which makes it difficult for foreign companies to do background check. However, a general online search and research may serve as a starting point, or for high value orders you may hire a consulting firm to conduct a due diligence on the target Chinese companies.

 Understand Chinese manufacturers and negotiate a win-win deal. China is a competitive manufacturing base. In most cases, export-oriented manufacturers do not have a big profit margin but live on the mere margin gained from returned VAT for goods export. If foreign buyers do not understand the situation and bargain too much, they may end up buying products of crap quality if the Chinese manufacturers do not want to lose orders to their competitors and hence have to compromise quality to gain a reasonable profit margin for themselves.

 Communicate with Chinese manufacturers/suppliers on your product requirement again and again, and then check, check, check. Chinese companies may not fully understand the product functions, quality requirements and life styles in western countries and hence may manufacture “good” products to their satisfaction but not to your standard. To avoid this, you cannot just check samples, but need to conduct pre-shipment inspection, especially for the 1st order. You may consider engaging local agents or production inspection organizations for the pre-shipment inspection.

 Ensure a safe term of payment. Chinese manufactures usually accept 30% deposit and 70% upon shipment for a 1st order. However, this is a risky term of payment for buyers as it is based on commercial credibility rather than stringent 3rd party guarantee. Letter of Credit is a better guarantee for buyers as well as a fair term of payment for sellers.

 Protect your intellectual property and don’t make your suppliers your potential competitors. To guarantee quality, many western buyers generously pass on their technology know-how to their manufacturing partners in China, with little consideration of the potential risk of losing intellectual property and nurturing potential competitors in the global market. Hence companies need to put an IP protection mechanism in place both legally and commercially, which is far more complex than just having patent and trademark registered in China. Companies need commercial advice from China business experts to build a robust commercial mechanism to protect IP proactively.

 Acknowledge Chinese cultural nuances and build a long term partnership. China is a nation full of “guanxi” (relationship), self-pride (especially with China’s rising economic power in the global market) and social functions. Westerners doing business in China usually find themselves exhausted with after-work dinners, saunas, and patting on each other’s shoulders while calling them brothers and sisters. As the saying goes “when you are in Rome, do as Romans do”, to fit into the business environment in China and establish long term partnerships with Chinese suppliers, westerners have to understand and acknowledge these Chinese cultural nuances, though they do not need to give up their western cultural identity. Chinese appreciate foreigners who can say a few Chinese words, enjoy “ganbei” (bottom up when drinking) and quote a line of an ancient Chinese poem.

 Consider a phasing strategy and other models to source from China. Foreign companies have many an option to source from China: source through agents, import from manufacturers directly or set up an on-the-ground procurement centre in China. A popular model is for the overseas headquarters to import from Chinese manufacturers directly at the initial stage and then move on to set up their own sourcing offices in China at a later stage.

 Have a contingency plan and back-up suppliers. Never reply on a single supplier in China. Things may go wrong with the suppliers or the partnerships. With back-up suppliers, you have more stable supply and stronger bargaining power as well.

Import/sourcing from China is in most cases a complicated task. It is highly recommended that, before taking actions to source from China, businesses develop a clear sourcing strategy by mapping its business strategy, resources and market condition, and then do homework to identify competent and committed suppliers/manufacturing partners.

For more information or assistance with import from China, plesae contact Sara Cheng

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