By Mike Bellamy

I think there are two main trends behind the scenes which have led to sub-quality products reaching the international marketplace. And when these two trends overlap, like a perfect storm, bad things can happen.

Trend #1: Rapid growth of production base in recent years

I live in the city of Shenzhen, across the border from Hong Kong. Twenty-five years ago it was a small fishing village. Today it is a megalopolis with nine million residents at the epicenter of China's manufacturing base.

In this rapidly changing high-growth environment, if you meet a manager who has been with a single company for five years, that is considered a long time. It is different from Western companies, where a senior engineer may spend 20-plus years with the same employer. China exporters may today be adopting production, management and quality control (QC) techniques that have long been standards in the West.

This results in a wide range of manufacturers of various standards, from those with dirt floors and no QC system to state-of-the-art factories. They are all anxious to land export orders, but not all are up to meeting the quality requirements of overseas buyers. However, so intense is the competition among exporters, sales departments are making promises that the production and QC teams may not be able to keep.

Trend #2: Global interaction made easy thanks to the Internet

You could say technology is a root cause of many quality problems by making it very easy for business partners on separate continents to communicate. Buyers and sellers readily connect online and transact business without having met in person.

Today we have more and more distributors, retailers and individuals going factory direct. In the past, specialized and experienced importers (often manufacturers from the US or EU) would contract production in China. They handled the quality control and delivery to US and EU buyers, such as retailers. Nowadays, these middlemen are being eliminated. I believe this is a positive change that will reduce pricing and lead times in the long run. But the problem is, too many first-time China buyers now enjoy easy access to China but lack have the experience to make it a success.

When I moved to Asia 10 years ago and served as a sourcing advisor, most of the clients had manufacturing backgrounds. They understood ISO and how a proper QC system is run. This makes a huge difference when it comes to developing a China sourcing program. Today, however, take a poll of the overseas buyers in any international hotel lobby and you will find that for 30-50 percent, this is their first time sourcing from China. They may be retailers, distributors, eBay power sellers or mom-and-pop shopkeepers. While they are well versed in sales, they have never heard of fundamental QC concepts like AQL charts and SPC.

I am not saying these buyers shouldn't source direct, but rather am simply emphasizing that buyers need to know what they are really up against. Because due to the relatively immature QC systems found at the typical China supplier, buyers are exposing themselves to great risk if they rely solely on their sub-suppliers to achieve the desired level of quality.

If you are new to buying from China, the single most critical action you can take to ensure a successful sourcing program is to visit your selected factory -- either in person or with the help of a third-party specialist -- to determine if it can meet your desired price point and quality levels. Keep in mind the competition to win orders is intense in China. So you need to see proof, not hear promises. A fancy website and well written emails should not be your main source of information about a supplier's legitimacy or capabilities.

At the risk of oversimplifying, here is a quick list of measures that are often overlooked by companies new to importing from China:

1. Set the acceptable level of defect (it may be zero, but the key is that buyer and seller are in agreement on this issue)

2. Use clear terms on warrantees

3. Put penalties in place for missing lead times

4. Adopt standard and precise terms of trade (EXW vs. FOB vs. CIF vs. DDP)

5. Confirm import-export licenses

6. Agree how to handle value-added tax (VAT) rebate

7. Require that defined standards, certificates of conformance and internal QC data (IQC, IPQC, FQC) be provided before shipment

8. Sign non-compete/non-disclosure agreements

9. Determine currency of payment and plan for currency fluctuations

10. Define methods/schedule for project updates and communication

11. Manage use of sub-suppliers

12. Plan for protection of intellectual property

13. Identify ownership of tooling and set-up equipment

Final comments
Know that sourcing from China is radically different from purchasing domestically, but you need not be intimidated. While many buyers new to China fail, many others are successful. I believe what separates the two is that the successful parties do their homework and get outside help if needed.

Learn more about Mike and PassageMaker at www.PSSchina.com.

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One person has commented on this article.

 1. Untitled
Bill, Unregistered

you need to define the process of defect assessment: Who should do it, what are the standards, and who pays for the assessment. There should also be penalty causes for defects, not just shipment delays.

There should also be clear clauses about customer returns - who pays, who ships, and how much. How about administrative costs of customer returns.

Some stuff need services as well. Who will pay for these services ?

 Posted 2008-03-26 06:33:31

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