Things to know when sourcing items from China

When sourcing and conducting business in China you have to understand its ultimate cultural and value differences. First of all in China it’s a relationship business. You have to remember that before any business can be done it’s best to establish a relationship with a person you are communicating.

Let’s take a closer look at Chinese culture. It’s very different from western mindset. Relationship in China can be narrowed down to an important aspect of their culture: Guan Xi. It’s elements include Trust, Respect, Face, and Time. By building relationship with Chinese suppliers you are automatically increasing your successfulness rate in the business you are about to conduct. The benefits will be:

  • Suppliers are a lot more responsive
  • Better prices
  • Suppliers will look for long-term relationship
  • Suppliers will offer exclusivity

Visiting a factory, having a meal, getting familiar with family, drinking together will all build Guan Xi and trust in China. In America we are used to talking business first, but it’s important to remember that in China it’s actually the reverse. In China people don’t talk about business until they feel comfortable with each other. The concept of building relationship with Chinese suppliers is critical for doing successful business.

Things to be aware of when conducting business in China:

  • Be aware and protect your designs (state your exclusive rights to your design in writing when drafting a contract with supplier, make sure that manufacturer can only sell this product to you)
  • Be proactive as Chinese people do not want to bring up problems until it’s too late (in Chinese culture it’s a bad habit to bring up problems)
  • Different work ethics and business standards

However despite all the differences there is one key similarity: desire to make money. The entrepreneurial spirit is very strong in China.

When choosing the right supplier in China it’s important to understand 80/20 Rule. More than 80% of suppliers you initially drafted down will mostly likely not be a fit for you. Your job is to identify and focus on 20% of suppliers that will actually do the job.

How to do this:

  • Communicate to a drafted list
  • Watch the response time
  • Shortlist the suppliers
  • Request samples
  • Gauge their customer service

Where to look for suppliers:

  • Alibaba
  • Global Sources
  • Trade shows in China (Canton Fair for example) – only if you have time and resources
  • Industry specific trade shows in China
  • Visit major trade shows in the US and Europe

The next big issue that usually follows is how to tell factories from trading companies:

  • ASK them (they will usually reply outright, but if you get a washy answer it’s most likely that supplier is just a trading company
  • Usually a real manufacturer will have a common theme and identical materials (for ex: stainless steel products) across all their products
  • Ask for technical specifications (trading companies will not be able to provide these details)
  • Visit a factory (if resources allow)

Why it’s best working with a factory rather than trading company:

  • Higher prices
  • No certain loyalty
  • Unreachable when problems arise

Another common question when sourcing products from China is negotiation and especially negotiating prices. In China you always get what you pay for. You simply cannot get a good thing when you are paying a very small price. However price is not the only factor. You must always consider the quality, delivery times, communication times, always imagine the whole picture. Always remember that in Chinese culture it is much morecommon to negotiate than in western culture, and it is expected for you to negotiate. When to negotiate:

  • Initially: shortlisted suppliers
  • As volumes grow: higher volumes = lower price per unit
  • When external factors are in place
  • When problems occur

After choosing the right supplier you can proceed to placing an order. Remember that it’s best to cover all questions before the production time, as costs to correct a mistake grow significantly after production phase. When possible you must insist on receiving a sample of final product before the production phase to correct any mistakes.