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Challenges in Sourcing Products from China to Europe

2023-12-28
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Challenges in Sourcing Products from China to Europe

China is and will continue to be one of the world's major exporters of manufactured goods. It is an apparent choice for European businesses seeking a place to buy their goods. Importing from China does, however, come with inherent challenges, as is the nature of business.

If you are a start-up and try to sell on online, product sourcing from China may be a good start. Contrary to common assumption, China does not only manufacture low-cost, low-quality goods. China has a lot of manufacturing facilities that produce high-quality products that can compete in any market.

As a business in Europe, you have the choice of purchasing locally, sourcing from east Europe, or manufacturing the goods in China. Product procurement from China may appear more difficult than the other two options, but it also has the highest profit potential. However, dealing with China's complicated economic structure needs some planning and strategy.

China and Europe trade relations

The European Union is dedicated to maintaining open trade relations with China, as China is doing better to follow fair trade practices, protect intellectual property rights, and fulfil its commitments as a WTO member. The EU and China reached an agreement in principle on the Comprehensive Agreement on Investment on December 30, 2020. The accord gives European investors more access to China's market.

Things to consider while sourcing from China to Europe

The first stage in a sourcing strategy is market research. You may have retailing or importing experience in a product area with high-profit margins. In this situation, the next natural step is to locate a Chinese supplier who manufactures such items and has experience selling to European businesses. 

Importers' requests for custom-made items have prompted Chinese firms to ramp up production. You might be interested in selling things that require precise technical specs to create. Your hunt for a Chinese supplier might begin once you've validated the demand for a certain product at a price you can justify.

A letter of credit is a typical financing tool that gives you access to credit lines and allows you to buy things from suppliers in other countries. This gives the product provider comfort of mind that payment will be made. It's a contract in which a bank or financier agrees to act as a middleman between you and your supplier.

Global sourcing is an ongoing practice that businesses across the world employ to reduce costs, increase profitability and most importantly, get the best possible product. However, with any business practice comes challenges which can make or break any team.

Risks in sourcing from China to Europe

You will find a huge number of websites with manufacturers offering items if you Google "China wholesale marketplaces." Some of these websites have factories with fake pages on them. People have shared their experiences about placing orders with these firms just to never get their shipments. Also, a website may offer an image of a brand-name item on a sales page, but when a consumer purchases from them, they receive a low-quality imitation of the item they purchased.

If you have a fragile product, it is always possible that it will be destroyed during transportation. A huge crate may fall on top of yours, a forklift driver could hit it by mistake, or a natural calamity could cause it to be damaged.

You can waste valuable days waiting for replies to questions when your supplier is on the other side of the world — which means they're sleeping when you're at work and vice versa.

Suppliers may not be proficient in your language and may be afraid to ask for explanations on several occasions. Follow up on conversations with written confirmation of what was agreed upon to avoid misconceptions.

Language and cultural differences

Language and cultural differences are probably the most obvious challenge you will face when doing business with managing Chinese suppliers. This can lead to misunderstandings and miscommunications between you and your supplier, which could potentially cause a lot of headaches down the road if left unaddressed. In addition to language barriers, it’s important to understand that Chinese businesspeople typically have a different way of thinking than Europeans do.

Another challenge related to China direct sourcing is cultural sensitivity — specifically understanding local culture and language as well as knowing how these factors will impact communication styles between manufacturer and buyer involved in global sourcing.

Suppliers may not be proficient in your language and may be afraid to ask for explanations on several occasions. Follow up on conversations with written confirmation of what was agreed upon to avoid misconceptions.

Geographic constraints

While geographic constraints are generally less of an issue for China-based businesses, it's important to consider where you're sourcing from and why.

There are many benefits to being close to your customers, suppliers, and transportation ports: shorter lead times on goods, faster response time from your supply chain, lower shipping costs, and reduced risk of damage during transit. But there's also value in being close to manufacturing hubs that have the resources you need, including labor and materials.

If your business is based outside China but works with an export agent in China, then things can be better because they will often be able to provide great support, they can easily send people into local markets, if necessary, at short notice.

Quality problems

When quality problems are reported by the customers, the brand reputation can be damaged. Quality control problems occur in many ways, but they’re most often identified when the product arrives at its destination. However, it’s too late to correct the errors when the products are delivered.

The main challenge with manufacturing product in China is finding qualified resources who can execute projects from start to finish without creating any hiccups along the way. These types of suppliers can be difficult to find because their workers need certain skillsets that aren't currently being taught in school or offered by employers in their country.

Hiring a QC inspector on the ground, to visit the factories on behalf of you, and conduct sufficient quality inspections, in recommended to solve this concern.

Currency fluctuations

Currency fluctuations can have a big effect on your company's profits, so it's important for you to understand and manage the risks that are associated with them. Most of Chinese suppliers only accept payments in USD, so, USD currency fluctuations can significantly affect the profit margin of European businesses.

For example, during Brexit, businesses saw severe devaluation of pounds against USD. So, they suffered greatly as they had to pay pounds in significantly higher amounts to their Chinese suppliers.

In order to protect themselves against currency fluctuations, many European companies hedge their currency exposure by using options or foreign-exchange forward contracts with an option provider or bank.

Environment and labor problems

China has been dealing with significant pollution problems for years now. The country has been heavily criticized for its poor air quality and high levels of smog in major cities like Beijing. Many international companies have had difficulty finding suppliers who can produce goods without polluting the environment or putting workers at risk from dangerous chemicals that could cause long-term health issues.

Chinese government has also come under fire for allowing labor standards to slip in recent years due to cost-cutting measures taken by factory owners that often-put employees at risk through unsafe working conditions or low wages paid out by employers.

To tackle these problems, European businesses should consider using a China sourcing company to find the verified suppliers which comply with all relative regulations in environment and labor protection.

Legal constraints

There is a wide range of laws and regulations that affect how companies do business in China. Some of these laws are common to most countries, while others are specific to China. There are also differences in how laws are interpreted, which can lead to confusion and misunderstandings between European businesses and their Chinese partners.

In order to understand legal constraints on global sourcing in China, we need to look at the legal environment in China first. The Chinese government has promoted economic modernization and internationalization for many years by enacting policies that support foreign investment.

Legally speaking, it's important for any company doing business overseas—whether directly through exporting or indirectly through outsourcing—to ensure they're complying with both local laws and international trade agreements signed by their country so that they don't run afoul of any unforeseen consequences later on down the road when trying to bring products back home again after manufacturing them abroad like other businesses might do today if given opportunity due insufficient knowledge about available options beforehand.

Conclusion

There are many challenges for sourcing from China to Europe. Before implementing procurement techniques, careful preparation is required. If there are logistical challenges, organizations must concentrate on their operations, ensuring that the essential technologies are delivered to each place continuously. Also, organizations may seek support from procurement agencies in China.

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