Sourcing in China 101

Before you begin sourcing overseas, think carefully about what you are doing. What often starts as a simple “bright idea” to save money can end up as a costly goose chase or worse.

Are you looking to improve your bottom line, are you responding to competitive pricing pressures from domestic or overseas competitors or are you plotting out your role in the global market? Think carefully. Many companies locked in the day-to-day lack the circumspection to see what they are doing and what the end game will be.

For most companies, their first foray into China is through sourcing. There are thousands of middlemen in the United States and China who will gladly provide sourcing services, some good and some bad. Selecting one is like selecting any other professional. Get references, make sure they are knowledgeable about your area of need, make sure they speak and write both English and Chinese fluently, compare prices, get it in writing and make sure you are comfortable with who you are going to be dealing with.

As a side note, if you know you will be looking at sources from particular areas within China, try to find someone who speaks the local dialect. Do not make the mistake of thinking that Chinese is a uniform language. Mandarin is the official language and most, but not all, speak it.

One of the first things you learn in China is that while written Chinese is standard, because Chinese characters do not contain pronunciation keys, there are thousands of local dialects. In addition to language differences, there are differences in local customs and a strong sense of local identity which can be an advantage if you are represented by someone identified as local.

After you have selected a sourcing agent or bravely decided to do it yourself, the next step is the Request for Quotation. You should pay close attention to this, as it is your introduction to your potential sources and it will provide you with a strong idea of how effective your sourcing agent is. Although your sourcing agent may not be willing to share their source list with you, you should request a copy of the Request for Quotation they will be sending out. It must provide sufficient information for sellers to quote efficiently and accurately and should include:

A brief introduction of the buyer and background of the inquiry; a name and a number on a quote sheet will not generate much if any interest. For all they know, it’s a competitor or a scam.

All necessary information in both English and Chinese. All specifications, drawings, blue prints, weights and measures should be translated in terms of meters and kilograms or must specify that English weights and measures will be applied. In the absence of specificity, you may find yourself with the closest metric equivalent to your specifications and it may not meet your tolerances.

Make sure you provide product names, not abbreviations or trade names. Include as many standard and equivalent product names as possible and send lots of pictures. Also, specify things like chemical analysis, inspection standards, material grade and if necessary provide samples. If color is important, include a paint chip from a standard color line like Pantone and specify that all products must be an exact color match.

Resist the urge to increase the quantity in hopes of getting a better quote. You need to match your needs to their capacity. All the rest is just game playing. You should include whether you are looking at creating a regular supply chain, and if so, the approximate number and volume of orders per year.

Include all trade terms, currency and unit numbers. All trade terms should be defined in both English and Chinese. Do not assume because you are asking for a quote that they have ever filled an overseas order. Because of currency fluctuations, choice of currency has become more important, and you need to understand the risks and your options. Unit numbers should be clearly stated in terms of either price per piece or kg as desired.

The inquiry stage is generally too early to discuss payment. The supplier will most likely include suggested payment terms which can be negotiated.

In terms of delivery, it is best to solicit a delivery schedule and then include a final schedule in the contract. The schedule of events should be a clear timeline (if you use working days, be aware of holidays in both the United States and China), specifying all activities and responsibilities between the buyer and seller, including orders, buyer inspections, insurance, shipping, payments, warranties, taxes, tariffs, fees, duties, export licenses, government inspections, damages etc.. This will give each side a clear picture of what to expect and the consequences if they fail to meet the terms of the schedule. As a foreign buyer, you want someone in China who knows how to handle everything necessary to get the product to you.

Packaging also needs special consideration. In addition to the character of the goods, shipping methods (sea or air), the time it will take to ship, storage needs and any relevant regulations.

If after-sales service/warranty is a consideration in choosing a supplier, you need to include a detailed request about want is desired.

There should be a reasonable quotation deadline and validity period which gives them and you a reasonable time to respond. A quotation’s validity period can range from three working days to three months depending on the type of goods. If you need a longer period to do more investigation, this should be stated clearly in the enquiry.

Do not send out the type of proprietary information that would require a Non-Disclosure Agreement (NDA). If you want to source things which would require an NDA, you need to do a lot more due diligence and have a higher level of confidence in who you are dealing with. Generally, even this is not advisable. You would be better off in the long run just creating your own Wholly Owned Foreign Entity (WOFE) in China if you wish to manufacture products with sensitive trade secrets or proprietary intellectual property (IP).

If you have questions about this article or suggestions about future articles please feel free to e-mail me through the editor. Otherwise I wish you all good fortune, health and sourcing in the Chinese Year of the Ox. 

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