With a few clicks of a mouse it is possible to find a vast number of Chinese suppliers, but with this approach come many risks.
We outline some of these risks:
Wow – that’s cheap!
Whilst all companies want to minimize cost, focusing on cost alone from the comfort of your office chair can have serious long term implications. A product is only cheap if it conforms to the quality standards that are set – and any company buying on price alone is always going to be at risk of the supplier using ‘value engineering’ techniques to find some profit. It is essential to know which company is making your goods, and that the price offered does not come at the cost of unexpected surprises in the future.
I told you that!
One of the most significant mistakes in international business is the perception of being understood. Communication is not about what is advised, it is about what is understood, and this is often highlighted in communication with China. At some point in the process, someone will have to translate information, and a simple misunderstanding can have a significant on costs and future supply. There are no short cuts, and time must be sufficient to focus on the detail to make sure the information supplied has been understood.
Just do what I want!
Chinese believe in making friends first, and value that over the business relationship. If you want to do business in China, you need to allow time to develop the relationship and that includes spending time with them as well as multiple visits to restaurants. This cannot be achieved with a busy schedule to pack in as much as possible on a trip over. Understanding the culture is where you will develop the relationship ‘guanxi’ from which the long term cooperation will flow.
Failure to plan..
China is vast, and there will be dozens of buying options – some will be right for you, others will not. The majority of factories will welcome your business, but that does not mean that they are the right suppliers. It takes time to work out an optimal partnership as well as agree on price and quality. The majority of companies that fail in China fail to plan…
Like any country, China offers a huge range of suppliers – some are reputable, others are not. Choosing the right supplier is not only about what you want to achieve – it is about whether the work suits a supplier. Some suppliers will welcome smaller order quantities – others won’t, and over the long term the cracks will show as lead times lengthen and you become less important to them. Ensure your interests are aligned, and many years of long term stability can be achieved.
Who else is involved?
Recent years have seen a massive impact as many smaller companies have been forced out of business by strict EHS audits – the impact has been significant throughout the supply chain, and production delays have been common. It is vital to understand which aspect of production is subcontracted and the impact on your product if this was to be changed.
Looks good to me…
Linked heavily to communication, the quality you receive will link heavily to the time invested up front in explaining the standards that are required. This stage can often be missed when the focus is on unit cost. Providing a factory with a set of printed standards is a start, but working out that they understand them and that they are reflected in their Work Instructions and quality procedures is of greater importance.
Who are you dealing with?
The internet approach will make you particularly vulnerable to this with many individuals posing as ‘factories’ and focusing on marketing and communication. Such individuals may well have an interest in you not visiting a factory, but even if you are allowed, this does not mean the business you are conducting is with that factory. Any capital investment made in production tooling, gauges or fixtures will be controlled by the ‘individual’ not the factory, and that individual will have the ability to switch production resulting in inconsistent quality (at best).
Often overlooked is how to deal with any disputes that arise. Regardless of whether a legal contract is in place, it is a very different issue trying to enforce this whilst maintaining supply to the standards that you need. Any disputes need to be handled with care and by someone who understands how to find a solution that does not include terminating the relationship.
Where has my money gone?
As recently as last week we were asked to help a company that had paid a deposit for some goods only for the deposit and beneficiary to disappear. This is certainly not unique to China, and any payments whether domestic or international are becoming targeted by fraudsters. Ensure that you use multiple sources of communication to establish the bank details are genuine, and related to the manufacturer you are in discussion with.
Dual sourcing can be a constructive way forward and protect the buyer – but this needs to come with selecting 2 suppliers that are happy with the purchasing volumes discussed. It is better to have one happy and engaged supplier than two that are not interested in your business, and will prioritise other work should it arrive. Dual sourcing can also lead to product quality differences that are hard to control in quality documents.