Buyer´s Guide to Sourcing in China

Some time back Daniel Su from Global Sources contacted me to let me know about their sourcing platform and all their available resources that they hoped could help this blog´s readership.

I was initially planning to write a post based on their “Buyer´s Guide to Sourcing in China”, but, as I was going through it in order to prepare the article, I realized it was SO GOOD that you should not miss one single line of what it says.

This guide covers the following aspects:

-evaluating suppliers, including really good tips on how to identify a legitimate manufacturer or what to check when auditing a factory

-negotiating with suppliers

-managing production & QC, including some tips on problema solving

-protecting your IP

You may read “Buyer´s Guide to Sourcing in China” here.

I was also pleasently surprise to discover the amount of really good information that they have put together on their site: sourcing frequently asked questions, experts´videos, articles written by sourcing professionals , interviews and surveys. You can find all this here.

I am sure you find all these resources very useful.

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16 Practical Chinese Negotiation Tips and General Strategies (compiled)

GENERAL STRATEGIES AND 16 PRACTICAL TIPS IN THE THREE STAGES OF BEFORE-DURING-AFTER NEGOTIATION IN CHINA
by Vincent F. Yip, PhD MBA, Management Consultant, and Lecturer, Stanford Continuing Studies ( Palo Alto, California)

Note from Foreign Entrepreneurs in China:  I´m planning to share this very good article in some social media forums so this is a compilation of  part I & II that you have probably read in my previous two posts)

For companies in Fortune 500 or even Small and Medium Enterprises, entry into the lucrative China market is a highly desired process that begins with identifying potential Chinese partners and entering into all-important negotiation. Other than generalities such as maintaining “guanxi” and “face”, any western team intending to go into China for business and commercial negotiations should have as many practical tips on the “dos and don’ts” of negotiating in China. I shall be teaching the Stanford Continuing Studies course “Doing Business in China” we will spend half a session on this important issue of negotiation during the six-week duration. This course begins in late June and the description of the course is in this link:

https://continuingstudies.stanford.edu/courses/course.php?cid=20114_BUS+202

Based on this author’s 30 years of experience travelling, living and working inside China, here is a list, not exhaustive by any means, for use in the three stages of before, during, and after the actual negotiations.

(A) PREPARATIONS:
1. Pick a neutral large city & location;
Background Fact: Do not give into pressure to conduct all negotiations in the small city of the Chinese partner, and suggest doing it in a larger international city with modern conveniences and security. There have been cases where the Chinese side can and has resorted to unethical practices to illegally obtain information from you.

2. Do background research on subject and personalities using Chinese sources;
Background Fact: China has no Moody’s, Better Business Bureau or any trustworthy rating agencies on the track record of a company. Best you find several other local Chinese sources to cross check the reputation of your Chinese partner or opponent in negotiation.

3. Pick your own team (age, seniority, sex, attire) carefully. Be consistent from meeting to meeting;
Background Fact: The Chinese prefer to maintain personal relationship from beginning to end, so keep the team intact. Also, youth and women among your team are not frowned upon in today’s China, but make sure your top leader has a title (make up one if needed) that commands respect from their side.

4. Be realistic about your strengths and weaknesses;

5. Bring gifts for your host, bring your own personal effects/medicine;
Background Fact: Most Chinese cities are quite modern and medical facilities are effective and reasonable, but not all your western medicine is readily available.

(B) ACTUAL NEGOTIATIONS:
6. Pick a neutral venue and a convenient time avoiding the eve of long national holidays of both countries, and allow “float” for overflow of schedule or the Chinese may use time pressure against you;
Background Fact: They tend to wait till the last day to raise critical issues and demands, and force you into making concessions because you are pressured to leave.

7. Stay at an international hotel, watch your belongings and intellectual property;

8. Know the wants and needs of your Chinese side, remember Sun Zi’s premier advice of “know yourself and know your enemy, and you will win a hundred battles”.

9. Do not fall prey to food, wine, & women; do not negotiate when tired or pressed;

10. Speak in your native tongue, use your own translator, write it down when it comes to numerals and figures as mistakes are commonly made right here;
Background Fact: Best to hire your own translator/interpreter and when it comes to numerals and magnitudes, insist on writing them down. Because of the difficulty in translating numbers/magnitudes, gross errors can occur even to the best VIP translators and the consequences are horrific of course!

11. Remember such Chinese negotiation tactics as:
– accusing you of violating guiding principles, guilt trip;

– asking for the moon, outrageous demands;

– threatening to go elsewhere for the better offer;

– divide and conquer & outlasting your patience;

12. Remember national and cultural sensitivities, avoid discussions on human rights and Tibet, for example, and always keep face and give face. Jokes seldom work across culture so best not to crack them openly.

(C) POST NEGOTIATION
13. Thank and praise host, take photographs, exchange souvenirs;

14. Redraft final agreement (must be in both languages), check for accuracy, go over details, and always have a scribe/secretary take care of all documents;
Background Fact: Remember that Chinese is a much more flexible and opaque language, but yet the Chinese copy is the one that prevail in their courts. Make sure then those details you had written down in the English version is correctly reflected in the Chinese version, and submit Appendices if needed.

15. Win or lose, happy or not, a farewell banquet (speeches, toasts and gifts exchanged) is definitely required;

16. A contract is valid only if it continues to be serviced, it is only the beginning of a difficult long road towards a successful project.

General Strategies
Many often ask if it is useful to study Mandarin and the Chinese language before going and my answer is normally to persuade them to instead spend their valuable time reading up on China’s history, culture and psyche. One of the most successful China experts is Dr. Kissinger, the legendary diplomat who helped open up US-China relationship in 1972, and he is not known to speak any Chinese. It is much more important to understand what drives the Chinese, their fears, concerns, and wants and needs, and China’s own “pride and prejudice”.

In general, some knowledge of Confucius teachings that are the underpinning of Chinese culture is certainly useful before hopping on the plane to China. But I would definitely recommend spending a week or two to browse through articles and business/military books on the famous Sun Zi “The Art of War”, as many of its strategies and tactics will surface during the long course of negotiations with the Chinese side.

Here is a parting comment that may surprise you. In the west, wars and military efforts are about display of bravery and valor, but Sun Zi said a successful militarist is never short of treachery and cunningness! Then there is also the Chinese saying that “the business field is just like a battle field”, now combine the two saying and you know why negotiation in China is not for the faint-hearted and unprepared!

By Vincent F. Yip, PhD MBA
Management Consultant,
and Lecturer, Stanford Continuing Studies
Palo Alto, California
Email: vyip101@hotmail.com
Cell: 415-860-0660

What do you think?

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16 Practical Chinese Negotiation Tips and General Strategies (Part II)

GENERAL STRATEGIES AND 16 PRACTICAL TIPS IN THE THREE STAGES OF BEFORE-DURING-AFTER NEGOTIATION IN CHINA
by Vincent F. Yip, PhD MBA, Management Consultant, and Lecturer, Stanford Continuing Studies ( Palo Alto, California)

This is the second part of guest post by Mr Vincent F. Yip. You may read the first part here.
Remember that he will be teaching the Stanford Continuing Studies course “Doing Business in China”.  This course begins in late June and the description of the course is in this link:
https://continuingstudies.stanford.edu/courses/course.php?cid=20114_BUS+202

 16 Practical Chinese Negotiation Tips and General Strategies (Part II)

(C) POST NEGOTIATION

13. Thank and praise host, take photographs, exchange souvenirs;

14. Redraft final agreement (must be in both languages), check for accuracy, go over details, and always have a scribe/secretary take care of all documents;
Background Fact: Remember that Chinese is a much more flexible and opaque language, but yet the Chinese copy is the one that prevail in their courts. Make sure then those details you had written down in the English version is correctly reflected in the Chinese version, and submit Appendices if needed.

15. Win or lose, happy or not, a farewell banquet (speeches, toasts and gifts exchanged) is definitely required;

16. A contract is valid only if it continues to be serviced, it is only the beginning of a difficult long road towards a successful project.

General Strategies
Many often ask if it is useful to study Mandarin and the Chinese language before going and my answer is normally to persuade them to instead spend their valuable time reading up on China’s history, culture and psyche. One of the most successful China experts is Dr. Kissinger, the legendary diplomat who helped open up US-China relationship in 1972, and he is not known to speak any Chinese. It is much more important to understand what drives the Chinese, their fears, concerns, and wants and needs, and China’s own “pride and prejudice”.

In general, some knowledge of Confucius teachings that are the underpinning of Chinese culture is certainly useful before hopping on the plane to China. But I would definitely recommend spending a week or two to browse through articles and business/military books on the famous Sun Zi “The Art of War”, as many of its strategies and tactics will surface during the long course of negotiations with the Chinese side.

Here is a parting comment that may surprise you. In the west, wars and military efforts are about display of bravery and valor, but Sun Zi said a successful militarist is never short of treachery and cunningness! Then there is also the Chinese saying that “the business field is just like a battle field”, now combine the two saying and you know why negotiation in China is not for the faint-hearted and unprepared!

By Vincent F. Yip, PhD MBA
Management Consultant,
and Lecturer, Stanford Continuing Studies
Palo Alto, California
Email: vyip101@hotmail.com
Cell: 415-860-0660

What do you think?

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16 Practical Chinese Negotiation Tips and General Strategies (Part I)

GENERAL STRATEGIES AND 16 PRACTICAL TIPS IN THE THREE STAGES OF BEFORE-DURING-AFTER NEGOTIATION IN CHINA
by Vincent F. Yip, PhD MBA, Management Consultant, and Lecturer, Stanford Continuing Studies ( Palo Alto, California)

For companies in Fortune 500 or even Small and Medium Enterprises, entry into the lucrative China market is a highly desired process that begins with identifying potential Chinese partners and entering into all-important negotiation. Other than generalities such as maintaining “guanxi” and “face”, any western team intending to go into China for business and commercial negotiations should have as many practical tips on the “dos and don’ts” of negotiating in China. I shall be teaching the Stanford Continuing Studies course “Doing Business in China” we will spend half a session on this important issue of negotiation during the six-week duration. This course begins in late June and the description of the course is in this link:

https://continuingstudies.stanford.edu/courses/course.php?cid=20114_BUS+202

Based on this author’s 30 years of experience travelling, living and working inside China, here is a list, not exhaustive by any means, for use in the three stages of before, during, and after the actual negotiations.

(A) PREPARATIONS:
1. Pick a neutral large city & location;
Background Fact: Do not give into pressure to conduct all negotiations in the small city of the Chinese partner, and suggest doing it in a larger international city with modern conveniences and security. There have been cases where the Chinese side can and has resorted to unethical practices to illegally obtain information from you.

2. Do background research on subject and personalities using Chinese sources;
Background Fact: China has no Moody’s, Better Business Bureau or any trustworthy rating agencies on the track record of a company. Best you find several other local Chinese sources to cross check the reputation of your Chinese partner or opponent in negotiation.

3. Pick your own team (age, seniority, sex, attire) carefully. Be consistent from meeting to meeting;
Background Fact: The Chinese prefer to maintain personal relationship from beginning to end, so keep the team intact. Also, youth and women among your team are not frowned upon in today’s China, but make sure your top leader has a title (make up one if needed) that commands respect from their side.

4. Be realistic about your strengths and weaknesses;

5. Bring gifts for your host, bring your own personal effects/medicine;
Background Fact: Most Chinese cities are quite modern and medical facilities are effective and reasonable, but not all your western medicine is readily available.

(B) ACTUAL NEGOTIATIONS:
6. Pick a neutral venue and a convenient time avoiding the eve of long national holidays of both countries, and allow “float” for overflow of schedule or the Chinese may use time pressure against you;
Background Fact: They tend to wait till the last day to raise critical issues and demands, and force you into making concessions because you are pressured to leave.

7. Stay at an international hotel, watch your belongings and intellectual property;

8. Know the wants and needs of your Chinese side, remember Sun Zi’s premier advice of “know yourself and know your enemy, and you will win a hundred battles”.

9. Do not fall prey to food, wine, & women; do not negotiate when tired or pressed;

10. Speak in your native tongue, use your own translator, write it down when it comes to numerals and figures as mistakes are commonly made right here;
Background Fact: Best to hire your own translator/interpreter and when it comes to numerals and magnitudes, insist on writing them down. Because of the difficulty in translating numbers/magnitudes, gross errors can occur even to the best VIP translators and the consequences are horrific of course!

11. Remember such Chinese negotiation tactics as:
– accusing you of violating guiding principles, guilt trip;

– asking for the moon, outrageous demands;

– threatening to go elsewhere for the better offer;

– divide and conquer & outlasting your patience;

12. Remember national and cultural sensitivities, avoid discussions on human rights and Tibet, for example, and always keep face and give face. Jokes seldom work across culture so best not to crack them openly.

Coming soon, post negotiation tips and general strategies.

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

This is another guest post prepared for the China 101 project.
This post has been written by Renaud Anjoran, who founded Sofeast, a QC firm in China in 2006, and has been writing advice for importers on his blog Quality Inspection Tips since 2009.
I would like to thank Renaud for his collaboration.

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

Thousands of new companies start importing from China every year, but they don’t know where to start and they tend to forget critical safety measures. Here is a “survival guide” that can help buyers eliminate 90% of the risks associated with China sourcing.

I.Finding a Suitable Supplier

1. Getting a nice sample does not mean a supplier can actually manufacture the product. It is only a basis for easy communication about your requirements.

2. Online directories (Alibaba, Global Sources…) and trade shows are only a starting point. Suppliers pay to be listed or to exhibit, and they are not rigorously screened.

3. Run a background check on the companies you shortlist. A “Business Credit Report” costs only 255 USD on Globis, and will help you spot the intermediaries that pretend to own a plant.

4. Check the factory. Look at the products they make, the processes they operate in-house, their other customers, etc.

5. Order a capacity audit, if you can´t visit the factory yourself. Every third-party inspection firm offers this service.

6. Get customer references, if possible in your country. Note that a manufacturer might refuse to tell you about their customers, and not always for bad reasons.

7. Do call those customers! You’d be surprised how often these references are fake… or these customers are actually unhappy!

8. Make sure the factory is familiar with your market´s regulatory standards. Ask a few questions, ask for relevant certificates and/or lab test reports.

9. Consider working with manufacturers of the right size. If your orders are small, very large manufacturers will probably quote high prices and not care about your orders.

10. Monitor small factories very closely. They often have no established management system. So either you trust the boss to personally look after your orders every day, or you keep a close eye on production.

11. Include a clause in your contract that prohibits subcontracting. Production might not take place in the factory you were shown, and in general product quality suffers greatly in these cases.

II.When drafting the contract

12. Clearly define your product, labeling, and packing requirements. Write a detailed specification sheet that leaves no room to interpretation.

13. Specify methods you will use for measuring and testing specifications.

14. Specify tolerances whenever applicable.

15. Specify penalties for non conformities. If you want the option to enforce this contract one day, make sure there is no room for interpretation on penalties.

Coming soon, Sourcing from China Survival Guide (part II), where we will read a lot more tips on:
-what to do before making any payments
-new product development
-payment terms
-quality control
-and some final warnings.

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China 101: Chinese Negotiation. 10 Top Tips for Chinese Negotiation (part II).

This is the second part of the article by guest contributor and Chinese negotiation expert Andrew Hupert. You may read the first part here.

10 Top Tips for Chinese Negotiation (Part II- tips 6 to 10)

6.  Have a strategy for getting information.
In Chinese negotiation, it is more important that you know the right questions than the right answers.  You have to know enough to assess his proposal and solution.  Western partners have a terrible habit of relying on their Chinese partner to keep them supplied with basic information about markets and regulations.  Plenty of great sources of information and knowledgeable contacts are available – make use of them.  Depending on a counter-party to keep you informed and up-to-date is suicidal.

7.  Beware the balance of power shift.
Chinese partners are known for purposely appearing weak and non-threatening at the start of a deal and manipulating the Western partner into injecting valuable assets or teaching vital information.  Once the Chinese side closes the gap, you can expect their negotiating style to become much more aggressive and demanding.  Guanxi relationships are a function of utility value, and once they no longer need you then they are going to squeeze you.

8.  Have a strategy for adding value.
They have to need you more than you need them.  Their learning curve will flatten much earlier than yours.  Once they understand your technology and your procedures, they will feel they no longer need you.  If you are dead weight, then it is worth it to them to get rid of you.  Know what your Chinese partner can’t do, and then make it central to your partnership.  Innovation, branding, new product development, and overseas sales are examples that have worked for Western partners in the past.

9.  Pick the right partner before you start negotiating.
Know what your strategic and operational gaps are, and then conduct a methodical search for a Chinese counterparty who can close the gap. Novices often find China overwhelming and tend to start negotiating with the first Chinese person they meet.  Most of the time the Westerner ends up giving away his business strategy and marketing plan to a potential competitor, without getting anything in return.  Know what you want from a local partner, and keep screening until you find an appropriate candidate.

10.  Trust with vigilance.
It’s possible to find Chinese partners who are honest and loyal, but your chances improve if they need you more than you need them.  Trusting the wrong person in China is fatal -but being too suspicious and controlling will alienate potentially valuable partners, staffers, and colleagues.  The Chinese side has to feel vested in the profitability of the enterprise, and see a clear path to their own success.  Striking the right balance between common-sense skepticism and healthy confidence in a colleague is a real challenge, but it often is the most significant factor to your success in China.

What are your views?

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China 101: Chinese Negotiation. 10 Top Tips for Chinese Negotiation (part I).

This article on “Chinese Negotiation” is part of the China 101 project. I would like to thank Andrew Hupert who has kindly accepted my invitation to join this project and has shared with us his best advice on the topic.
Andrew Hupert has spent the last 9 years as a corporate trainer, writer, and lecturer in Shanghai, working with both local and multinational businesses.  His professional work has focused on improving the deal-making and negotiating skills of both local and multinational corporations.

Andrew publishes several websites and weblogs concerned with international management and cross-cultural negotiation involving China:
ChinaSolved.com addresses management issues for international managers already engaged in running a China-based operation.
ChineseNegotiation.com focuses on China-US negotiating issues.
He has also published articles in business journals such as Shanghai Business Review and the China Economic Review.  He has recently published his first book – Guanxi for the Busy American.

China 101: Chinese Negotiation. 10 Top Tips for Chinese Negotiation.

Negotiating in China isn’t a special niche for an elite group of international lawyers and diplomats any more.  China is the second largest economy in the world and is becoming a vital counterparty for many individuals and businesses that have never done cross-border deals before. If you haven’t done business with a counterparty from China yet, then it is probably only a matter of time before you or someone in your organization does.  Plenty of Westerners have had great success in China, but it requires preparation and a little research.

Chinese negotiators have an undeserved reputation for being difficult, enigmatic, and unpredictable.  They simplyhave their own approach to business.  Since the global financial crisis of 2008, however, Chinese dealmakers are more confident and secure in their own methods.  Westerners who expect Chinese negotiators to accommodate American or European notions of best practices are setting themselves up for failure.  Chinese negotiators aren’t about to abandon traditional methods like relationship-building and guanxi that have been successful for them, especially since Western standard operating procedure has been looking so shaky over the last few years.  When you negotiate in China, you are in their house – and if you don’t understand the local rules then it is your problem, not theirs.

Here are ten tips that will help Western negotiators be more successful in China.

1.  Don’t disregard guanxi.
Chinese negotiators don’t have to like you, but they have to feel that they know you and understand how you’ll behave as a partner.  In the West, successful transactions lead to relationships – in China, successful relationships lead to transactions.  You have to understand the difference.  Relationship-building rituals like banquets and boardroom meetings where you are introduced to the entire management hierarchy aren’t a prelude to serious negotiating — they are the negotiation.

2.  Guanxi and relationship-building are the traditional Chinese version of due diligence.
They care more about the kind of person you are than the assets your company controls.  Show them who you are if you want to move forward.  While it’s true that Chinese negotiators don’t like to settle details right away, they are still “on the job” during the social meetings and banquets.  To the Chinese side, understanding your character, business philosophy, risk tolerance, and commitment to China determines what kind of partner you are going to be.  If you are evasive, uncomfortable, or withholding during the initial meetings, they may consider you to be dishonest or untrustworthy.

3.  Chinese negotiations don’t end.
The Chinese side feels that they aren’t supposed to.   Westerners believe that a signed contract regulates the partnership, but Chinese feel that an understanding between honest people is the only true constant in an otherwise unpredictable business world. Traditional Chinese negotiators don’t draw a sharp distinction between relationship and negotiation, so as long as the relationship is intact then deal terms are in play.   They feel that environmental shifts and changes in relative circumstances are valid reasons for renegotiation.Plan for the post-contract negotiation in advance, because it is most certainly going to occur.

4.  They will make a play for your IP. 
Technology, processes, and know-how are considered private property in the West, but many Chinese still consider them to be intangibles that are up for grabs.  Saying they can’t have something only makes it more desirable.  Don’t expect to collect rent on last-year’s innovations.  Chinese only pay for technology once (if at all).  The best way to handle software and technology sales is to start planning significant upgrades early.  Apple keeps partners honest and stays profitable in China by perpetually selling the next version.

5.  The same people who can open doors can shut them and lock you out.
Don’t assume that you will be running the show.  If your strategy involves relying on local partners, key staff, or powerful connections to keep your business going, you are in a precarious position.  Successful negotiators are constantly building up their network and adding new connections.  Negotiating strength is a function of the size of your contact list.

Coming soon. China 101: Chinese Negotiation (part II)

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21 Steps To Follow When Sourcing from China (Part II)

This is the second part of “21 Steps to follow when sourcing from China”, a guest post by Barbara Cisneros  who worked as Chief Representative in China for four year, mainly in the sourcing area.
You can read the first part here (steps 1 to 12)

21 STEPS TO FOLLOW WHEN SOURCING FROM CHINA (PART II)
by Barbara Cisneros

Once the production has started:

13. Do Quality Control, often.
Check several times. Go to the factory, even plan some “surprise” visits, so you can confirm that things are running properly, mainly in terms of quality and delivery times.

14. Do not relax – even with established suppliers.
Check every production run. Although you may have produced the same product several times, KEEP A CLOSE EYE on every single production run. DO NOT RELAX.

15. Make sure to inspect the product in the factory once production is completed.
I always inspected the product once the order was completed. Sometimes I would inspect myself at the factory, and other times, when in doubt, I would send random samples to our headquarters lab. Only if results were satisfactory, would I give the green light.

16. Do your quality control assessment again when the goods arrive at your home premises.

On Logistics:

17. Work with a reliable company.

18. Closely monitor the shipment / logistic process.
Be on top of the shipment, if you want to avoid unwanted delays and unexpected destination charges. If you do not have an export license, my advice is to use FOB conditions.

On relationship building:

19.Trust and relationship building is important for both sides.
Of course China works somehow different, but when doing long term business mutual trust and confidence will be important for both parties.

In our case, after one year of working together, we reached payment agreements with some suppliers that did not involve advance payments. Obviously, it gives you peace of mind in that fact that your payments will be done after the goods arrive at your premises.

20. Press them, but fulfil your own commitments.
It’s very important to build also a more “personal” relationship, but if they see you do not reach the committed volumes or payment terms they will back off.

A final observation, which should probably be the first one

21.Make sure it makes sense to source from China
The way things have developed lately, make sure the prices you find in China will fulfil your expectations. For some type of products, especially those that must be made according to more strict technical specifications, it may not be in your  interests any more. Take into account that in developed areas in China (the southeast mainly), the labour costs have increased by more than 10% on average per year in the last three years, and freight costs for 2012 are growing rapidly. It may be more in your interests to manufacture in other countries, or even in your own country (unless you are planning to enter the Chinese market).

What do you think?

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21 Steps To Follow When Sourcing From China (Part I)

This is a guest post by Barbara Cisneros who moved to China four years back to set up and manage a Representative Office in Shanghai. She is an outstanding professional and specially dear to me as she became a friend after I met her and interviewed her for this blog two years back, when I was just starting this journey.

21 STEPS TO FOLLOW WHEN SOURCING FROM CHINA (PART I)
by Barbara Cisneros

I’ve been working as Chief Representative in China for four year, mainly in the sourcing area. Since I was specialised in the same field and type of products, my main objective was to establish long-term suppliers in order to optimise the  cost / quality / delivery times of our products.

Some of the points that I will mention below may seem obvious, but from my own experience, and what I’ve seen others (small and medium enterprises) doing, the same mistakes are repeated over and over.

These are the tips I would give to anybody who starts sourcing from China:

Before your start sourcing

1. ALWAYS visit the factory.
Do not rely on the information on the internet. Even websites like Alibaba are not reliable enough when looking for suppliers. Sometimes a supplier is classified as a Golden Supplier for more than two years and when you visit the factory there is not much behind the online presence.
In order to find certain type of products the best way is to attend specific exhibitions.

When working on OEM projects where you want a product to be developed according to your specifications:
2. Prepare/ be ready with ALL required documents / specifications from the very beginning.

3. Check the production facilities in order to confirm that they produce what you expect.

4. Clarify and agree all technical aspects
Have a first meeting in order to make sure that you clarify and agree all the technical aspects of the product. Most of the times the standards and material specifications are different in China. Make sure you agree to use the ones that are equivalent / closest to what you need.

5. Do not assume that because they work in a specific field they are familiar with foreign specifications / nomenclature.

6. Do not expect them to be proactive.
You have to confirm that they have read and studied all your specifications. Do not expect them to act in a proactive way. Most of the time, if they have doubts they will follow their normal procedures and use the most common or cheaper materials, which may not be suitable for your product.

7. ASK and CONFIRM as many times as you think is needed.
This way you will avoid future “surprises”.

8. Be prepared to be FLEXIBLE.
For some materials/standards you may not find the exact equivalent that you need. Be prepared to be FLEXIBLE, although avoiding any degradation in quality. Discuss with them in order to reach an agreement, and provide them with different solutions. Flexibility is a must when dealing with Chinese factories.

9. Changes during the manufacturing process will lead to terrible headaches, including renegotiating prices.

10. Make sure all the PACKING information is included in the initial requirements.

11.Do no trust anybody saying “Yes, I can do it”.
When starting to produce a new product in China do not trust anyone who says “Yes, I can do it” – even if they are already your suppliers. Normally small / medium factories are specialised in one type of product / technology. For example, a factory that works with certain type of forged steel will not work with cast steel, although the products may have the same usage.

12. Consider using some suppliers as “traders”.
If you do not work with very large volumes, try to group your products with only a few suppliers. Sometimes they can work as a “trader” in some of the parts you need, getting a better offer than the one you may have obtained alone.

Coming soon “21 Steps to Follow When Sourcing from China. Part II”

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