Buying from China – What First Time Buyers Need to Know
Target audience of this article is for new importers, providing the basic knowledge on key aspects of import and practical getting started information. Data compiled from Global Sources Presentation in Hong Kong, October 2007
- Evaluating Suppliers
- Due Diligence
- Quality Control / Inspections
- Shipping / Logistics
- Payment Processes
The 5 R’s of Importing from China
- Research / Resources
- Relationships (Guanxi)
- Requirements (Yours)
- Rome (as in “When in Rome”…)
Study these key points and be prepared to go over each item when you make your first procurement from a Chinese supplier
- Communication Quality
- Communication Time
- Due Diligence
- Lead Times
- Purchase Orders and Contracts
- Order Quantities
- Product Design and Development
- Quality Control and Inspections
- Payment Procedures
- Shipping and Logistics
- Customs Clearance
- Duties and Tariffs
Research and Resources
When importing there are many libraries of books, people, and internet tools to help you, below are some key points to consider:
- Department of Commerce
- Import and Export associations
- Government Seminars
- Network with other buyers
- Learn your product specifics! Standards / certifications, Security regulations
Very important in China business. Initial meetings as much (or more) of a social exchange than a business decision. More importance placed on long term than a quick hit and run deal. Relationships mean much more than quick transaction. Small talk before business decision, personal questions, getting to know you. Share your personal life, be open to build trust. Meaningful gifts from your home town. Try to learn the language.
Be very clear – over explicit, nothing is assumed. Include terms of engagement in Purchase Order.
Rome (as in “When in Rome”)
Key pointers when dealing with someone in the Chinese culture.
- Handshake make eye contact
- Present namecards with two hands, and the card facing the receiver
- Study and read the namecard, shows respect
- Respect and obeserve hierarchy
- Address counterparts as “Mr Lu”, etc
- Don’t be direct in refusals
Mitigating Risk in China
Risk Management in China is more attainable than a first time buyer thinks. There are principles of Risk Management in China. What Risk Management Tools are available? How can foreign companies feel confident in their suppliers? What works? What doesn’t?
Credit Information in China
- China has lots of information in file, you just need to know where to look.
- How aged is this information you are looking at?
- Risks in China is different than risk in other countries.What Information is Available?
- Credit Reports – most common tool to use to screen a new supplier. Credit rating, ownership history, civil litigation, financial situation, banking relationships, payment record, operational condition
- Company Searches
- Civil Litigation History
- Due Diligence Reports
- Background Searchs on Individuals
Advanced DD (Due Diligence)
In addition to a basic credit report – this advanced research provides: which directors are involved in the company, related companies, local media information, and international watch-list checks.
Supply Chain Process
Choosing Your supplier
- Buying Agents vs. Sales Agents – Know who is representing you and your best interests
- Financial Due Diligence – what is the financial health of the supplier you are purchasing from?
- Internet Research – Look for other stories online
- Trade and Industry Associations.
Communicating Your Requirements
- Standardize Your Formats
- Keep It Simple
- Document Everything
- Visual Aids & Samples
Testing and Inspections
- Understanding the Legal Requirements
- Cost Effective Training
- Parameters for Choosing a Lab
- When and Where to Inspect
- Parameters for Choosing an Inspection Service Provider
Audits & Assessments
- Factory Assessments
- Social Compliance & Accountability
- Environment & Community
- Chemical Registration
- Parameters for Choosing an Audit & Assessment Service Provider
Logistics – Transportation
Ok, you’ve had the goods manufactured, now all you have to do it get it from there to your end destination….
China Freight Transport Overview
- Railway – extended current network is from 73,000 to 100,000 km. growing at 10% a year.
- Seafreight – 3 of the top 10 ports in the world are in China, growing at 13% a year.
- Airfreight – 500 airports in operation, growing at 17% a year.
- Road – 1.4 million km of roads in the country.
- Incoterms – Defines the handover point and costs for transportation in the trade. Please refer to the table at http://www.iccwbo.org/incoterms/Customs clearance can be a daunting headache as well. Make sure you have a trusted customs broker in place that will keep on top of your shipment and clear the shipment quickly and painlessly. For more information see a customs fee breakdown and example bill.
Producing Factory at Origin – Trading Company / vendor – Buyer – Shipping Company (or companies) – Authorities (customs, inspection)
- Shipping department at factory declares cargo ready for shipment
- Manufacturer engages export customs broker in China for clearance and inspection
- China Customs allows export, so long as manufacturer has license to export
- Chinese trucking company picks up cargo and carries to port/border
- Customs cleared for export (usually to Hong Kong)
- Delivery to Port or Airport
- Export Clearance and booking with airline/shipping line
- Arrival at destination port
- Customs clearance
- Local trucking company picks up cargo at port / airport
- Delivery to buyers warehouse
What to do when things go wrong when buying from China?
- Find the right suppliers in the first place
- Keep cool, communicate clearly
- Put yourself in their shoes
- Professional arbitration
- Legal enforcement last option