China 101: Sourcing from China Survival Guide (Part II)

This is the second part of a guest post by Renaud Anjouran, founder of Sofeast, a QC firm in China, and writer of Quality Inspection Tips blog, a must read blog if you are sourcing from China.
If you missed the first part of this article you may read it here.

China 101: Sourcing from China Survival Guide (tips 16 to 29)

III.Before any payment is made
16. Get pre-production samples that represent your exact requirements (in 90% of product categories, it is not a problem technically for the factory).

17. Ensure the product meets, or is designed to meet, your country´s safety standards.

18. Ensure the supplier knows what you expect in terms of packaging.

IV.If you are developing a new product with a Chinese manufacturer
19. Document product characteristics before approaching a manufacturer. Pay an engineer if the product is complex.

20. Document production processes if you are lucky enough to be in the factory while they are setting the machines up for sampling or a pilot run.

Be aware that if you decide to switch suppliers later on, you are not likely to have that information (points 19 and 20) unless you have taken the precaution of documenting it.

 V.Negotiate Reasonable Payment Terms
21. On T/T (Telegraphic Transfer, or bank wire)
This is he most common payment method. The standard terms are a 30% deposit before the components/materials are purchased, with the remaining 70% to be paid after the supplier faxes the bill of lading to the importer.

If special molds/tools need to be developped before pre-production sampling are approved, you will certainly be asked to pay a deposit accordingly. Make sure the supplier writes that these molds/tools are yours. If large sums are at stake, a lawyer can help you draft a contract.

22. Irrevocable L/C (Letter of Credit)
Try using an L/C with new suppliers (because it’s better not to wire a deposit that might get lost) or for large orders (because the bank fees are relatively low).

Bank fees are higher than a simple bank wire, but you are much better protected. Most serious exporters accept an L/C if you specify reasonable terms (don’t ask for 60+ days of credit).

It is always better to send the draft to your supplier for commenting, before the L/C is “opened” by your bank.

 VI.Quality Control
23. Control your product quality in the factory. Do not count on the factory’s own QC staff. Visit the Factory yourself, or appoint a third party inspection firm.

24. Inspect:
a) when the first finished products get off the lines (to catch issues early).

b) after 100% of the order is finished (to verify the average quality level, and to check packaging).

25. Do lab testing if neccessary. Take advantage of the inspections: pick up random samples at that time. It important not to let the supplier choose the samples by himself.

VII. Final Warnings
26. It is possible for an importer to sue a Chinese supplier successfully. But only in China.

27. The worst is to simply accept a supplier’s pro forma invoice. A slightly better solution is to issue a purchase order with your terms, and to get it chopped by the supplier. Yet this might not be enough if you want to keep the option to sue the supplier successfully.

28. The best solution is to work with a lawyer who is familiar with China’s business environment. He will draft a contract that addresses the major risks you should watch out for, and he will remove any ambiguity. Again, when buying from China, you need to be so detailed and clear that there is no room for interpretation.

29. Be sure to put this entire system in place before you start negotiating with new suppliers.
a) Tell them it is your company’s policy, and your boss/partner requires it.

b) They will be more likely to agree. If you mention a contract after you have spent days with them and they know you are in a hurry to produce, they will refuse.

What do you think? Would you like to share your tips?

You may read more about sourcing tips and negotiating with suppliers in the links below:

* 36 Tips on How to Deal or Negotiate with your Chinese Suppliers
* 21 Steps to Follow when Sourcing from China (part I)
* 21 Steps to Follow when Sourcing from China (part II)
* Sourcing from China: Who are the Happy Buyers?
* Do not Interrupt Me & 6 Reasons Why you Should Not Do It
* 4 Tips to Succeed in Times of Silence

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  1. It is not correct to say that an importer can only successfully sue its Chinese supplier in China. This is generally true, but certainly not always. For example, if the Chinese supplier has assets in the United States, you can probably sue them in the United States and then if you win, you will have assets from which you can collect on your judgment. This is just one example.