Transferring the responsibility onto the exporter

Foreign buyers coming to China should worry of three types of risks when it comes to the actions of their suppliers:

• Some Chinese suppliers are guilty of wishful misconduct such as scams, for example to get a buyer's deposit or hide the identity of the manufacturer. These situations are listed in How to tell if a Factory is Cheating you, on the Quality Wars blog.
• Another type of fraud is “quality fade”, as described as “the deliberate and secret habit of widening profit margins through a reduction in the quality of materials” by Paul Midler.
• To complicate matters, the poor organization of most Chinese manufacturers also leads to “an inadvertent slide in various aspects of the manufacturing process, such as standards, production equipment, testing procedures and instruments”, as described by David Dayton in Managing China product quality: Preventing ‘quality date’.

These three cases can cause an importer to lose a lot of money and/or put unsafe products on his market. Who is to blame? At the risk of shocking some readers, I think the buying company is entirely responsible… unless it takes specific steps.

Importers should use the tools at their disposal

Buyers have tools and they should use them: credit checks, letters of credit, contracts, factory audits, product inspections, visits during production, lab tests… Each one adds to a project’s costs, but reduces risks. Serious importers know that the risks are too high if at least two or three of these tools are not used.

To me, it is like going sailing at sea. If you don’t check the weather forecast in advance, and you don’t bring with you the basic safety items such as life jackets, who is to blame if a disaster strikes? Would you say that the weather is at fault?

Forget all about business ethics

In principle, a supplier that intentionally commits a fraud is guilty, and the buyer who didn’t catch it is a victim. In the absolute, who can argue with that?

However, in China people don’t exactly think this way about fraud and responsibility. They work in a low-trust environment. Many local vendors try to cut corners all the time, and manufacturers are quite savvy at bargaining prices and then checking what they receive. They expect their partners to behave unethically, so why don’t these foreign buyers also expect it from their own suppliers?

I don’t think I am exaggerating. For example, the principle of presumption of innocence is not applied in China’s courts, at least not like in most developed countries. Similarly, the Chinese government expects most companies to “cook their books”, so they collect tax on turnover–not only on profit. Chinese factories would get cheated all the time if they trusted their vendors.

One might point out that, on the contrary, Chinese manufacturers tend to trust their suppliers too much, because constant verification is considered embarrassing (it might cause loss of face to the company whose products get controlled). It is true, but only when the two parties are considered old friends. It seems they either “don’t trust and do verify” or “do trust and don’t verify”. No middle ground here!

Different cultures expect different things, and this is the root of the misunderstanding. Western importers expect Chinese suppliers to ship safe and commercially acceptable products, because that’s what they are expected to deliver to their own customers. Many Chinese suppliers follow the same logic, but in reverse.

Doing “unethical” things is fine in China–more specifically, it is fine until one gets caught. The Chinese have no religion telling them what is good and what is bad. Decades of communism and the current materialistic behavior also play a role.

I discussed these issues with Chinese friends, who naturally think “if a buyer doesn’t control the goods before shipment, whatever happens after that is their problem”. And it is not restricted to local manufacturers and exporters. A friend of mine purchased an expensive bag in a famous department store, only to find that the color faded on her clothes. She tried to get a refund, but it was impossible.

How to keep responsibility on the supplier’s side

I am not trying to find excuses for dishonest Chinese suppliers. And I am not suggesting that all Chinese suppliers are lying and cheating, either.

I mean that many small-and-medium-size importers take unnecessary risks, and they transfer these risks to consumers. Unsafe products are regularly recalled in the US and in Europe. But these recalls are only the tip of the iceberg. Many more dangerous goods probably end up in stores, until accidents are reported.

How to avoid these risks? As noted above, some tools are available. They can be used appropriately or not. For example, testing will not be reliable if the supplier sends samples of his choice to the lab or his choice. A product inspection will not be reliable if the importer relies on a trading company’s inspectors. But these tools can be used in an effective manner, and they can place responsibility on the shoulders of the suppliers.

Let’s focus on two of these tools that are often ignored by SMEs buying in China:

• Product inspections. Why pay a supplier and let him ship the goods without getting any information? Even if the supplier is honest, the factory might have made mistakes that will give the importer a lot of headaches on delivery. Sending the products back is not an option, and having them replaced takes a lot of money and time. Apart from checking the quantity and quality of the goods, inspectors can pick production samples and send them to a laboratory to can ensure they are safe. It is estimated that about 80% of shipments out of China are not checked professionally. When it comes to small buyers, this proportion is more likely 90%. Why not spend $300 and sleep better at night?
• Contracts. A specialized lawyer can draft a contract in Chinese that can be enforced in local courts. A buyer can use it to get compensation for unacceptable quality. But also to prevent a manufacturer from subcontracting, from keeping the buyer’s molds, or from making counterfeit products. Good OEM contracts are missing in most transactions, and I never saw a small buyer taking the time to get one. How much does it cost per shipment, if the only things that change are the supplier name, the shipment date, and the product specifications?

These are just two of the tools at the buyers’ disposal. Note that these tools have a strong dissuasive effect on the supplier (risk reduction), AND help the importer if something goes wrong (transfer of responsibility).

Every importer should find a solution adapted to his needs. A few examples:

• Factory audit + letter of credit + final random inspection
• Lab tests on materials + in-process inspection + final random inspection
• Credit check + OEM contract + final random inspection

---

Renaud Anjoran is the founder of Sofeast Quality Control and helps importers to improve and secure their product quality in China. He writes advice for importers on the Quality Inspection blog. He lives full time in Shenzhen, China. You can contact him at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .


---



No one has commented on this article.
Add a comment
Name :
Title :
E-mail :
Website :
Comment(s) :
Verify :
	Answer this simple math question: 10 x 5 = ?
J! Reactions 1.09.04 • Professional Site License
Copyright © 2006 S. A. DeCaro