How we manage purchases and production in China.
China presents itself as an excellent opportunity when it comes to manufacturing or buying our product.
The total scale of production in China and the huge number of Chinese products and suppliers mean that our options won’t be limited when it comes to finding the right product for our business. However, with each opportunity there is an element of risk and China is not the exception.
Is it possible to limit risks? Of course it is! How? By planning our purchases and production management.
We will discuss some of the most common mistakes people make when sourcing products in China and selecting a new supplier, so that you can avoid them in the future by applying the solutions we put forward.
Taking insufficient safety measures or doing lax control.
Many professionals or companies do not examine future providers closely enough.
This mistake can be very costly. We must know that fairs, emails and phone calls can’t reveal by themselves the real abilities of a provider.
Visiting our potential Chinese providers’ factories and/or offices is absolutely necessary, not to say mandatory. This task will give us a clearer insight of the work conditions and the professional and technical abilities of the suppliers.
This inspection process, prior to effectively incorporating the potential supplier to our company, can be carried out by our own collaborators, using a ‘check list’ prepared for that purpose, or we can hire a specialized and certified company to provide that service.
This might sound obvious but a clear definition of our product is utterly important.
The first step is to have detailed, intelligible and consistent instructions to make sure the product is the ideal one, and to establish a successful relationship with the supplier. The more details we provide to the supplier, in an organized manner, the more exact the final product will be, and the more accurate its quotation and production time estimate.
Focusing only on the price
One can get easily excited with good prices. After all, the lower the purchase price, the higher our potential earnings will be. Obviously, price can be the first filter to select providers, but focusing only on this aspect when choosing a supplier can be a great mistake in the long run.
Often times, lower prices come together with some compromises, be it in terms of quality, reliability, communication or other things such as hazardous materials, inefficient processes, inadequate work conditions, etc.
It’s important to pay attention to price, but establishing it as the only criterion when making a decision might ruin our strategy for manufacturing and purchasing in China.
Extremely low prices are a warning sign to avoid a provider. If the price seems too good to be true, then it probably isn’t.
Not having a local contact.
Doing business internationally is fascinating and vitally necessary to grow our company. However, we must keep in mind, especially at the beginning, that it’s not easy and that it might turn into a potential disaster if we don’t thoroughly plan how to establish contact with these new personal and business cultures, as well as how we manage the purchase or manufacture.
Having a local or foreign professional with a vast experience in the market, on the field, will help us avoid problems.
This collaborator should speak Chinese and be able to attend quality inspections, as well as any other emergency related to logistics or production.
Many businessmen and managers think they can handle operations remotely, with the aim to reduce costs; but the need to have someone on the field can’t be underestimated, let alone omitted.
Not creating solid agreements
Relying on verbal agreements and contracts is a very risky way of doing business.
When purchasing and manufacturing products from China, it’s very important to write everything down and to create contracts with all the parties involved.
Standard contracts include main points, terms and details of the product, but it’s important to consult a legal professional who knows the local legislation. This could make the difference between a contract that, according to us, will cover us, and a contract that will be truly solid. Remember that the applicable law to do business in a foreign country is different, and it might be very difficult to navigate this by ourselves.
A popular idea is that contracts on their own lack legitimacy in China in comparison with the Western World, but having a contract that is as solid as possible remains the first line of defense –and maybe the only one—against any problem that might arise in our relationship with the supplier.
By acting with common sense, with an open mind towards the culture we are dealing with, and avoiding these mistakes, we will be able to take advantage of the many opportunities that producing and buying in China have to offer, and we can secure a profitable business relationship for both parties.
Evidently, this is much easier now than in the recent past thanks to the maturation of the market, improvements in communication and the progress of technology.
Lots of luck and keep moving forward! There are plenty and good businesses to be done in China!