Pitfalls to avoid when dealing with China suppliers: a veteran's advice

Q: For someone who is talking directly to China manufacturers for the first time, what differences should they expect compared to talking to domestic suppliers?

A: Oh boy, a lot of things. It's incredible. You have the good and bad situations that arise. When you come to a trade show you can obviously meet a lot of new contacts on the show floor, where you really don't know who is Mr. Who. You don't know whether the person that you seeing in a particular booth is a manufacturer or not. They may have a beautiful presentation, great products, and you consider a business relationships with them. But it becomes obvious that some of the companies are trading companies. They are not necessarily the manufacturer, but they represent themselves as a manufacturer.

And sometimes when you do place some orders, you find that the quality isn't the same that we're accustomed to in America or Europe. One of the things that I've seen was that many of these companies are entrepreneurs, and what is acceptable in China and India and other part of developing Asia regarding packaging, for example, is not the same that we expect in the Americas or Europe. Execution to the final details sometimes isn't there. The product is great, but not the packaging. And sometimes you there are some changes in the product, albeit perhaps something minor like a screw. But a screw in our expectation needs to be approved if its going to be changed. In China it may be they found a better or lower cost manufacturer and all of a sudden you have a product that isn't manufactured exactly to the original specification. This change can affect the aesthetics without affecting the function, but is still a change.

So there can be surprises in dealing with that kind of situation, and that's where it is very important for you to maintain a lot of contact with the supplier. And realize that you have to help them a bit. They may have the greatest product but you may be their first customer. That's been my situation as their first customer outside of China. And we spend, perhaps for the first three or four or five months, 80 percent of our time helping them with manuals, helping them with packaging, helping them bring their product to the next level. And it has been rewarding, albeit frustrating at times, that, if you see the product, you have to expect a long term relationship where each will help the other.

Q: Given differences in the business culture of your domestic suppliers and China suppliers, do you adjust your approach to the deal and discussions?

A: Yes, I think for any country, whether you are importing from China or you are importing from France, it is very important for the importer to understand a bit of the culture and how business and relationships are made and kept. I found that instead of going up and saying, "I want to buy this," which is commonplace when we go to a show in the UK or Essen [Germany] or the Americas, we need to get to know the supplier..

Here [in China], if you want a long-term relationship, it is knowing the company, knowing the individuals, making sure that you not just speaking to the sales representative, who could be perhaps just an interpreter, who can just explain the product very basically, this is the price, and so on. You have to go to the next level if you really want to be successful. At least that's my opinion. We started with a very, very modest sales expectation, more of a hobby business for this particular product we were working with. Now with the relationship, we've learned to trust each other and see that we were also long-term, rather than looking for the next supplier who is going be 10 cents cheaper or a dollar cheaper. We established loyalty. And that is something, especially in the Asian countries and here in China especially I think, where there is wariness on the other side as well, saying, "Are these people going to work with us for the long-term?" So it's really a marriage that you have to look for. That really makes difference in the positive experience.

Q: Beside establishing loyalty through repeat orders is there anything else that you do to deepen the relationship, that maybe you don't need to do with US suppliers?

A: Definitely. Providing, in my China manufacturers' case, product information, competitive product information, testing information, how their product competes with another product. China is great at manufacturing, great at putting together even new technologies. But they don't do the same analysis that we do in Europe, the Americas, South Africa, Australia, and Canada, where we take a look at competitive products and make a grid, and analyze each product and how they compare, what are the features that the customers need. I've seen certain products at this show that are actually going backwards, taking away needed features that my customer base needs. This is from competitor manufacturers. So I spent time with my manufacturer to let them know: "Hey, these three other companies out there, look what they've done. This is their great, brand new product. Don't go and follow their way because they're actually taking features away." You really have to educate the China manufacturer, the marketing department, and executive management especially, to direct their resources to the right area for their product. You have to expect to do that if you want a long-term relationship.

Q: For your product and your suppliers, do you need to take specific measures to protect your intellectual property?

A: Yes, I learned through the school of hard knocks. I had a non-disclosure [agreement] signed, and we in America -- especially our lawyers -- say a contract has to be executed in the state of Colorado, or the state of California. We're all taught that's what you want. Even in America dealing with a company in New York, you want the contract executed in Denver so you save lawyer's fees in case something happens.

Well, guess what? I made the mistake where we signed the contract executable in the state of Colorado by the laws of America and so on, and my intellectual property, product, was copied and I bumped into it in the UK at a trade show. Basically, there was no way for me to stop that manufacturer from taking my IP and selling it out there, because how am I going to go after him here in China?

So, my recommendation is that you execute the contract in Chinese law, and Chinese law is very serious. If a company is caught stealing your IP and it is under Chinese law, these people are put in prison. I would rather have a contract signed in China, rather than a contract signed in the Americas for IP. And that's, again, through the school of hard knocks, and I wish I had known about that. It would have saved a lot of heartache.

Q: How do you go about communicating and nailing down your requirements with China suppliers?

A: There's maybe three or four different angles to that question, and [three or four] solutions as well. Obviously, if I buy a product that's made in Europe or made in the States, it comes in and it goes out. I don't have to have any kind of incoming inspection in my own facility. We've learned the hard way -- not perhaps on the product itself, except maybe for a visual or screws being changed or whatever -- but primarily on packaging.

Our issues were packaging, where the Chinese manufacturer sells the product in China, or in Malaysia, or India or some other country where packaging is not that important. They've never had a problem. [But] if I have a crushed carton of a finished product, I can't sell that to a customer. So we have to take a picture and go back and explain to them that they have to take a look at the type of cardboard they are using for their container shipments, or their UPS overnight shipments. And document them with pictures of the box.

You sometimes have to spend time, especially with heavier products, not perhaps the light products. Or take a look at perhaps completely doing a different package where the package is put together in the States, and you received all your individual components in individual packages. So it lessens the damage with final packaging is done in the States. Different ways. So you do have to spend a lot of time on it. Also, a lot of companies, maybe they have the ISO rating, but they don't adhere to it, they don't have the quarantine for the incoming inspection of parts, or quarantine [for] something coming out of their final production that maybe gets missed. So you sometimes want to say, "Show me your flowchart and let me help you." That takes 5 to 10 minutes. "Here is a little flowchart and this is the way I would like you to handle the QC." You'll be surprised how much mileage you can get out of that. Your partnership really grows with that because you are helping them succeed in their marketplace as well.

Q: You are working directly with your China suppliers; you visit them; you see their factories. In terms of getting your orders through the whole process, do you handle logistics and payment yourself?

A: I think it's important at the beginning of a relationship to show that top level management in your company is very interested in helping and making sure that for the first shipments, whether they be over a year or whether they be over just a month or two, that your suppliers overseas see that it has the highest level of attention. And that way also, it means that their general manager traditionally will also look into your business and make sure things happen right.

Q: Does that mean in terms of expecting the product, arranging the shipment, arranging the payment, that you use some of the agent for some of that?

A: I haven't. Both in very large companies and in my own small- to medium-sized business, I think one obviously has to take a look at putting the attention to detail where it has to be. When you're dealing with a brand new product where there is engineering involved and customization, I think you have to get involved. Perhaps not on wire transfer side, but definitely on negotiating the first orders and giving them feedback on product coming in.

If you are a large corporation, like Wal-Mart or Canadian Tire, for example, you obviously have a larger infrastructure, and you're not dealing with, perhaps, developing products or customizing product for a marketplace, except for packaging. In my case, we often modify existing products: "These are the specifications, we'd like to take an existing product that you have and make it that much better."

Obviously, even when I've worked at the Fortune 100 companies, I didn't do the wire transfers. But I still want to make sure -- and this goes back 15 years -- that I have that one-to-one level contact with the supplier.

Q: Is that the case for shipping as well?

A: No. Basically, I actually let [the suppliers] handle the shipping. I've found that manufacturers know much more about shipping than we do in America. There are different ways of consolidating shipping. The supplier can get shipments over to America faster and cheaper than overnight service from any of the major carriers. I believe one of the things that China has done very well is putting in communication infrastructure, highway infrastructure, as well as exporting of goods into America. The manufacturers sometimes use forwarding agents or trading companies to assist them consolidating. And that obviously benefits everyone because now the costs of freight are shared, and that obviously increases profitability for everyone on all sides. So, yes, I think you have to listen to [the suppliers]. I don't think you can just dictate: "Send everything over by UPS or DHL overnight." Then they say, "Why are you doing that? We've been listening to you for a year. This is the way you should do it." So I hit myself on the head and said, "OK, I'm sorry."

Q: Is there anything other key information that you think new importers should be aware of in starting their China business?

A: Don't do the same mistakes that I've made. That's why these informational seminars are so important. I didn't have that six or seven Global Sources Trade Shows ago. It was through the school of hard knocks. I had the IP issues, [but] I'm still around so I must be doing something right.

I think one of the things is you have to go into it as an exciting venture. A lot of people always say, "Chinese products are no good." But everything is made in China. My Sony laptop is made in China, my camera is made in China, the world is China. And China is so exciting. Most people in America say, "Don't go to China", but I'm basing my livelihood on coming to China. For a small company, there is still opportunity for an entrepreneur to come in, find a niche market if you know your market, find the right supplier, and build your business. And a most successful one. If you share information, the manufacturer will give you the products as you need them and evolve for the long-term.

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Readers have left 6 comments.

 1. Untitled
China Law Blog, Unregistered

You did not need to execute the contract in China to be able to sue in China under Chinese law. You just need to put in the contract that Chinese law applies and China will be the jurisdiction of any dispute. It is preferable this contract be in Chinese.

 Posted 2007-11-03 06:07:28

 2. Owner
Bonnie, Unregistered

I am have plush pet toys manufactured in China. They minimum order is 3000 pcs. I can't afford to lay out that much money for my initial order. How can I get them to agree on a small order initially and at the same price quoted for the 3000 pcs. Please give me you best advice?

 Posted 2007-12-22 19:36:13

 3. Untitled
Guest User, Unregistered

How this works

 Posted 2008-07-09 08:35:18

 4. Quality Control Specialist
Andrew Reich, Unregistered

One thing not to forget is the importance of running a china supplier verification before you buy. This is a full background and credit check on the factory or trading company and will basically ensure a smooth sourcing process.

 Posted 2008-11-04 04:23:24

 5. CEO
Charles Kirmuss, Unregistered

Thanks for reading the interview and I have received many emails asking for assistance. I stronglky urge anyone to visit the potential factory before making any major comitments which if not met, could impact your business dramatically. Contract that is binding in China, with translation of any key contractual terms into Chinese is very important. Times are getting tough worldwide and I just received a 100% defective shipment. Thank God I did not pay the entire invoice.

 Posted 2009-02-06 20:16:26

 6. Accounting Supervisor
Dianna Corriero, Unregistered

Is there a site/agency etc that will confirm whether a clothing manufacturer is certified as a 'non-sweatshop" factory?

 Posted 2009-04-13 14:07:29

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