Moving manufacturing tasks to China is beneficial to every kind of business. The well-known advantage is low manufacturing costs, which means low rates for consumers and better margin. The gross profit for your business increases with low manufacturing costs.
Your brand competes against competitors online or offline as a low production rate influences potential consumers buying decisions. Even when you factor in the shipping costs, it is still low-cost to import from China.
Unfortunately, the label displaying ‘Made in China’ has a bad reputation. Everyone is familiar with poor-quality fakes that resemble the original brand but fail on use.
Fortunately, the trend has changed. There are high-quality manufacturers you can find in China, but there are many things you need to pay attention to. It will help to avoid the mistakes and dilemma of doing business with China manufacturing agents.
Be cognizant of trade tariffs & barriers as well as quality certificates and compliance. Globally, there is an increase in trade protection, so it is recommended to perform a cost-benefit analysis carefully before choosing to import. High import tariffs or trade barriers can consume potential profits got from imports. Certain products may need UL, CE, or other accreditations.
Ensure that the chosen Chinese supplier or manufacturer knows safety regulations in your niche market and even the locations you plan to sell.
Physically visit the factory or hire a local sourcing agent to represent your business to evaluate safety and compliance standards. Find out if they are suitable for your business requirements.
Discuss clearly your product needs with the Chinese manufacturer repeatedly and check every production phase. The Chinese supplier may be unaware that the product quality requirements and functions must align with Western countries, so the definition of a good product will be based on their satisfaction and not your business-standard. Therefore, quality inspection, again and again, is a MUST!
Order samples and have them tested at your own lab network for quality.
The raw material and equipment quality has to be evaluated and verified before manufacturing commences as well as during different production phases.
Pre-shipment inspection is also essential.
Importers need to be cautious and take preventive actions before importing goods as well as during the manufacturing process.
Choose a reliable and capable supplier
Finding and vetting manufacturers is time-consuming and stressful because you need to make sure about their quality standards. There are myriads of factories capable of manufacturing orders in bulk and taking steps to try and get your business. It is challenging.
The nightmare stories associated with Chinese manufacturer makes the task hard even after you found one that fulfills your manufacturing and quality needs.
Fortunately, you can choose experienced China manufacturing agents. They can make your process of getting products made in China more comfortable.
Having someone local representing your business sounds soothing as you can avoid costly errors due to language barriers, cultural differences, misunderstanding, unclear communication, etc.
There are many ways to verify suppliers in China. There are scammers and illegitimate companies in China called the ‘Suitcase Company’. These are set to look glamorous on their website but in reality, don’t exist.
So, perform a background check before placing your first order. There is no way to check the legitimate business status in China, so importers need to have a background check conducted. Perform general online research or better still hire professionals to do due diligence.
Dealing directly with the manufacturer or with sourcing companies
Directly sourcing from China is tempting because you can tap a better profit margin. It even ensures direct interaction with the supplier. Many established Chinese exporters are operating on a large scale and are committed to big orders and mass production.
Based on your needs, it will be better to choose a sourcing company in China who will work with small orders and help to secure a better deal as well as perform a pre-shipment quality inspection.
Know Chinese manufacturers and smartly negotiate
China is a manufacturing country, so is extremely competitive in offering suitable deals. Export-oriented manufacturers in China don’t have huge profit margin, but are satisfied with the low margin they get from exported goods returned VAT.
Some importers are not aware of their situation and bargain a lot. They can end up ordering poor-quality products. It happens when the Chinese supplier does not desire to lose your order to the competition. Therefore, they approve your deal and sacrifice quality to earn a reasonable profit.
Communicate again & again to avoid misinterpretation
Importers must be aware of the differences in culture, language, and expectations between East and West. For example, many suppliers in Asian countries speculate rather than ask questions in case of doubt with a fear that asking questions will make them look bad.
Therefore, communicate product requirements with the Chinese supplier repeatedly and triple-check. Just checking samples is not sufficient, it is crucial to perform a pre-shipment inspection. Better engage a reliable China manufacturing agent to perform the inspection, which offers a peace of mind.
Negotiate safe payment terms
The standard payment terms are a 30% deposit upfront and the remaining 70% by T/T on the first order shipment. For buyers, payment is risky because it is grounded on commercial credibility instead of a strict 3rd party guarantee.
Alternatively, Letter of Credit offers less risk and better guarantee to buyers and fair payment terms to the sellers. You will need to choose a payment mode wisely, check exchange rates, and even plan remittances to avoid inevitable currency fluctuations.
A golden rule is to clearly spell out the payment modes, terms, and schedules in your contract. Do it in Mandarin and English to avoid confusion. Be considerate about your supplier’s costs and risks because it helps to build a long-term strong relationship.
Never pay to a personal account but insist on the manufacturer’s business account. It needs to be specified clearly during contract negotiations.
Intellectual property protection
Ownership registration ensures that you reap benefits of the Intellectual Property in your jurisdiction as well as if your product manufacturing crosses borders. Never depend on IP protection in China, so have a solid Chia-specific contract created.
NDA (Non-Disclosure Agreement) is a common IP protection protocol used in China, it prohibits the manufacturer from sharing or using your designs.
NNN means non-use, non-disclosure, & non-circumvention agreement, which is stronger than NDA. Make sure to have the contract written by legal professionals familiar with IP rights in China and experienced in writing similar contracts.
If it is a bilingual contract then ensure translation accuracy. Hire professionals, if you don’t read Mandarin. Even after IP registration, you need to stay vigilant about infringement.
Be proactive in IP protection to ensure that your manufacturers don’t transform into your potential competitors. So, importers must put IP protection mechanisms legally and commercially.
Recognize Chinese cultural tones
Importers from the West may find it exhausting to participate in after-work dinners or patting one another on the back calling brothers and sisters. Importers need to comfortably adapt to the cultural nuances to fit in China’s business environment.
It helps to establish a productive long-term relationship with their Chinese manufacturers. It doesn’t mean Western importers have to sacrifice their Western cultural distinctiveness.
The Chinese suppliers appreciate foreigners, who speak a couple of Chinese words or quote a phrase from their ancient Chinese literature.
Integrate quality assurance into the deal
You will need to figure out what quality is needed like product functioning or material superiority. It is achievable via the final sample. Importers need to settle on the AQL. It is the maximum percentage of defective features they will allow per batch.
You will need to engage an inspection service in China to monitor the product quality as agreed. If you ignore then there can be a protection issue.
The pre-shipping inspection aims to check if the product quality aligns with customer satisfaction. Pre-shipping is crucial, especially when consumer goods are purchased because consumables need to fulfill specific bureau standards.
An established supplier will always make sure to manufacture high-quality products to maintain its positive reputation. The importer will also be able to build a good brand reputation with the help of professional China manufacturing agents.
Have a backup contingency plan
Never depend on one manufacturer in China or wait for disaster to occur. There are chances that things with the supplier may go haywire.
For example, if your product sales are excellent then will the manufacturing facility in China willingly ramp up its production and grow with you?
Unfortunately, many Chinese factory owners are not keen on new equipment investment or hiring more labor.
So, you will need to subcontract and this is a maddening task as you will need to engineer the subcontractor in making the product similar to the original manufacturer.
It is wise not to get locked with a single manufacturer and the last thing you desire to do is start searching for a new factory.
Have backup suppliers right from the start, which offers a more stable supply chain and strong bargaining power.
Sourcing products from China is challenging, but not impossible. Develop a transparent sourcing strategy as well as do your due diligence to find a committed and capable manufacturer.