3 Common Risks of Sourcing from China
Sourcing From China can be a great way for you to make money, as long as you know how to play it safe and avoid the common risks associated with this practice. Before you dive right into looking for suppliers from China, you have to fully understand the process of product sourcing and why sourcing from China can be more lucrative than sourcing locally.
By partnering with one of these Chinese suppliers, you can significantly increase your bottom line by paying less for product sourcing. It may sound like an obvious decision to make to benefit your business, but there is a lot of planning and work that must be done before you can start enjoying a beneficial business relationship with a Chinese supplier.
This article will take a look at some of the most common risks related to the business of sourcing from China and how you can be proactive about avoiding them.
Risk #1 – Working with a shady supplier
Every industry has reputable companies and companies that should be avoided at all costs. There is no exception to this when it comes to Chinese suppliers. You will find a lot of honest and reputable companies, but if you aren’t careful, you might also find some suppliers who want to take advantage of you and benefit their own pocket instead.
What you can do about it – In order to make sure that you are entering into a contract with a trustworthy supplier, you must do plenty of research beforehand. Don’t worry; you don’t have to do it alone. Product sourcing from China has become such a popular business, there are professional companies that will research Chinese suppliers for you and help you expose any negative information that can signal a red flag for you.
Let’s face it, unless you decide to move to China to be closer to your manufacturer, you will lack a lot of oversight and will have to rely on the eyes and ears of your Chinese business associate to ensure that everything at the factory is running smoothly and efficiently. For this reason, you want to choose a supplier that is professional and has a lot of experience in exporting goods from China for the purpose of reselling somewhere else. Don’t be afraid to ask for hard evidence of experience either. Anybody can tell you what you want to hear in order to land the deal. You need to see with your own eyes that your potential supplier has a long resume boasting a lot of success in the exporting industry.
Risk #2 – Less protection under the law
When you decide to get involved in product sourcing from China, you have to be prepared for less protection under the law. It’s just part of the importing/exporting business, and while it might not seem fair, it is simply the nature of the beast. If something goes wrong with your supplier, you can try to seek justice through legal means, but you may not always be successful. The Chinese legal system does not necessarily recognize injustices in business partnerships in the same way the U.S. court system does.
Even if you try to sue a Chinese supplier in the U.S., chances are Chinese courts will not uphold any type of decision.
What you can do about it – In order to try to give yourself added legal protection, you need to make sure that the contract you enter into with your Chinese supplier is airtight. This document should, of course, lay out reasonable terms that are agreed upon between you and your supplier, but it should also consist of terms that can be upheld in either a U.S. court or a Chinese court. This contract is going to serve as the foundation for your entire product sourcing endeavor. It is in your best interest to hire a lawyer that specializes in exporting, especially product sourcing from China, who can assist you in drawing up terms that are reasonable yet provide you with protection in the event of a problem.
Risk #3 – Stolen intellectual property and illegal redistribution
One of the biggest reasons business owners avoid product sourcing from China is because of the major risk of having their product idea stolen without their knowledge. This all goes back to finding a reputable supplier. If you are product sourcing from a factory owner in China who seems like he has a hidden agenda, chances are he does have an alternative plan in mind for your product. Countless horror stories have been reported by business owners who explored the option of product sourcing from China to save money and ended up with nothing but problems after their product was being reproduced and sold in a different market without their knowledge or permission.
What you can do about it – One of the easiest ways you can try to minimize the illegal poaching of your product design is to place an identifying marker on your product mold. This way, if a product is returned to you for being defective and it does not have the mark, you know right away that it is not being produced and sold according to the terms of your contract. Unauthorized forms of your product circulating in the market can come back to haunt you. Another way you can keep tabs on the activity in your supplier’s factory is to make frequent visits. If you make your presence known often, your supplier will get the idea that you are diligent about watching over the production of your goods, and he might be less likely to go behind your back. If it is not feasible for you to make trips to oversee production, there are independent inspection companies for hire in China that will go to your factory and report back to you about everything they see.
By staying smart and aware, you can avoid these common risks and make product sourcing from China work well for your business.