Questions, Comments and Stories from a Week of China Tradeshows

Here is the best quote from the shows so far.  In talking with a Chinese industry consultant about the status of sourcing electronics in China, he told us: “I think that many foreigners have some serious problems here.”  This is from a guy whose job it is to promote the electronics industry, not look out for the foreign buyers.

The conversation we were in was about some of the people that are attending “New to China buyers: buying from China” seminars and why buyer’s with experience are attending these presentations as well.

He shared with me the story of a large utility in Eastern Europe buying hundreds of thousands of dollars worth of components from a number of factories in Zhejiang province and ending up getting product that was either useless from the beginning or was broken within just a few months of installation.  This consultant was hired to help them both get some money back and finding better suppliers for future orders.

The results of his research were that the suppliers were actually not factories but had represented themselves as such.  The buyers had not visited the factory sites but only met the suppliers at a tradeshow.  The clients had also not done any QC either.

This guy, who, again was representing the industry suppliers not the buyers, told me that he advised the clients to hire someone locally to both run factory audits before buying and do on-site QC once orders have been placed and before final payments were made.

Word to the wise: if large industries are getting ripped off when buying from China, small buyers that don’t have the ability to enforce contracts or have any physical presence in China are likely going to be taken advantage of as well.

Question. “All the suggestions you’ve made (QC, background checks, testing, etc.) take all the possibility for profit out of the orders from China.”  (I know, it’s not a question.  Work with me.)

Answer:

First, if you’re ordering $10,000 or more and you can’t afford to spend $600-$900 on QC and some background checks then you’re in the wrong industry.  This is less money than the cost of the ticket that you bought to fly to the tradeshow (which, if you asked me is not where you should be spending your money anyway). $1000 could be lost in a customs delay, a very small percentage of crappy product, penalties from a DC for missing a shipping date, small changes in prices of goods, etc.

Second, if your margins are too tight to be able to pay for testing (to meet legal requirements in your home country) then you’re asking to be put out of business (and maybe in prison too).  This isn’t my “suggestion” these are legal requirements!!

Finally, after almost 20 years in Asia, I believe that you’ll have better odds at Macao than you do of getting $10,000+ dollars worth of product without having defects or rejects that are worth less than the costs of QC.  Why take the risk?

China is as risky as you make it.  You can eliminate MOST of your risk for a relatively little amount of money.  Buying from China is much more like buying from ebay than it is buying from Amazon.

Question. What are the very minimum standards that you’d suggest people do to safely buy from China?

Answer:

1. Spend $200-$300 for background research on your suppliers before you send any money.  Confirm who they really are and what they really own/do.

2. Coordinate all your documentation–Contracts, PO’s and QC reports.  Don’t pay for anything without physical 3rd party verification.  This will save you money!

3. Hire 3PQC to check at least twice during the production cycle.  One check at about 25-30% and another check at 85-90% completed.  Man-day fees are about $250 plus expenses per day.  $600.

4. Hire a 3PL from the very beginning to coordinate logistics for you.  Remember, just because China is cheap, if you don’t know what the importing duties/restrictions are it may not save you any money in the end.  This will save you money!

That’s less than $1000 to confirm that you’ll be delivered exactly what you’ve ordered and paid for.

Question. One more non-question: Met a guy that was exporting from China and importing to South America knock-off (illegal) products—and he was complaining about all the troubles he had getting through customs in South America.  He even went so far to say as to complain that it’s costing him more (in bribes) to get the goods through customs.  Not sure why he was telling me this.  Was I supposed to be impressed?

Answer. Just don’t do it.  Don’t go there.  Don’t even be tempted by it.  The fastest way to lose money is to bank on either some under the table deals or some special personal connections.  Maybe you’ll make a bunch of money.  Maybe you’ll get away with it.  But if you don’t you will lose all your money and maybe even go to jail.  China isn’t nearly as risky as stupid deals are.

5 Responses to “Questions, Comments and Stories from a Week of China Tradeshows”

  1. [...] Dayton wrote a very good article about it: “All the suggestions you’ve made (QC, background checks, testing, etc.) take all the [...]

  2. First I’d like to say that thats a very interesting, great article, and very informative (unlike many I found along my search for information), so thanks.
    Second, I wanted to ask about companies that specialize in contracting between the manufacturer and the importer/client – Are there any that are known for honesty and regards for the chinese traditions and lifestyle?
    I’ve looked and found a company called “Helios Developments” that does that for sourcing from China (their website at the link) – Any info about them? any opinion?

    Thanks again

  3. Hi! After all that has been said and written about sourcing in China, I still get surprised when I see that companies are not devoting a small budget to ensure they have a good QC or production inspection. I’ve been interviewing lots of entrepreneurs doing business in China for my blog, and one thing they always emphasize is the need for a good QC even with your best suppliers.
    I’ve just posted an interview with a couple of these entrepreneurs titled “7 top tips for entrepreneurs starting business in China” and this is precisely theirs last piece of advice “don’t relax, even with good suppliers!”
    If you are interested you can find it here:
    http://www.foreignentrepreneursinchina.com/2010/04/7-top-tips-for-entrepreneurs-starting-business-in-china/

  4. Very interesting and extremely useful article. In relation to doing business in China, I would like to share an opportunity with readers.

    The U.S. Commercial Service/ U.S. Department of Commerce would like to invite readers to a discussion on China’s macroeconomic situation, implications of the huge stimulus package and how U.S. firms can best position for success in this dynamic market.
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  5. [...] week I was reading a post on the Silk Road International Blog with some very good advice from an industry expert on how to [...]

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