David Dayton is the owner and manager of SRI.  David has been working and studying in Asia since 1988 and he leads SRI from our Shenzhen, China office.  Besides Shenzhen, David has lived and in Thailand, Taiwan, and Chongqing.

David is a regular presenter for Global Sources’ New Buyer Training seminars in Shanghai, Dubai, Hong Kong (and Johannesburg in 2012).  He has also spoken for Global Sources’ Supplier Education program and Metering China’s Xi’An and Guangzhou Sourcing Shows.  David has been published in Euro Biz magazine, Right Sight Asia, Garden International, The China Sourcer and other trade publications and on numerous sites online including the China Economic Review, the New Zealand government’s international trade information website and China Success Stories.  He has been interviewed by the BBC, CBS 60 Minutes, The AP, the CBS Evening News, the Hong Kong Trade and Development Council and by NPR on China related education and business issues.  SRI’s blog has been listed on multiple lists as one of the top 10 business blogs for China and David’s blog postings have been featured on the WSJ China blog “best of” lists.  David is also a founding member of the China Sourcing Information Center.

David has a Master’s Degree in Southeast Asian Cultural Anthropology, focusing on Comparative Chinese and Thai Corporate Cultures and a BA in International Relations and East Asian History.  David has worked as a consultant, manager, trainer and translator on both sides of the Pacific and he speaks both Thai and Mandarin.

The most trusted source of Asian suppliers!

October 20, 2011 by Global Sources

Many buyers don’t do business with China suppliers because they think most of them are unreliable. Well, Global Sources has got the sourcing help to find trustworthy suppliers, not fly-by-night shops. Each verified supplier on our site and in our magazines is visited at least three times to make sure that their company is a real, export-ready, with real products and real offices. Some of the specific tools we offer buyers to source more confidently, with less risk are:

Online sourcing directory

GlobalSources.com lists millions of products from hundreds of thousands of suppliers. Use our search functions to sort and filter suppliers by business type, location and more.  Contact suppliers directly using our convenient online inquiry form to get answers to questions on product specifications, pricing, shipping and more.

Industry-specific sourcing magazines

Subscribe to free e-magazines and receive new issues monthly by e-mail.  Every month buyers get updates on new products, news on market trends and accurate contact details for hundreds of verified suppliers. There are 18 industry-specific titles, so each magazine provides targeted information. Clicking on a supplier ad in the e-magazine lets buyers contact that supplier directly or go to their websites to learn more about them. Print subscriptions also available.

China Sourcing Fairs

Meet thousands of suppliers in-person at Global Sources’ specialized tradeshows, held in seven key locations in Asia, South Africa, the US and the Middle East. Buyers can sit down with suppliers to see all the latest products available. Check out upcoming tradeshows at China Sourcing Fairs. And if you can’t visit in-person, look at our Online Sourcing Fairs, which allow you to “virtually” visit the fairs (both past and future).

New product updates in your chosen categories

With Product Alert updates, buyers know when new products in their selected categories are posted online. On the same day, in fact.  Fine tune the types of products you’re looking for by choosing from over 6,000 categories. And receive industry news in your areas of interest too. Save time and effort with these free product & news updates.

In-depth information on key China industries

China Sourcing Reports offer buyers detailed profiles of key manufacturers in China and elsewhere in Asia – plus information on best-selling export products, pricing forecasts, industry trends and more. See all 99 sourcing reports currently available. Prices range from $75 to $400.

PLUS…learn how to avoid common pitfalls when you’re sourcing from China. Check out the “What Every Buyer Should Know” page. This is where we’ve posted proven best practices, insights from experts in the field and first-hand advice from experienced China buyers.

Global Sources has been helping buyers make more confident, more informed China sourcing decisions for over 40 years, through its online directory, trade shows, research reports and monthly magazines. Learn more about Global Sources’ products and services.

2. Price does not equal cost.  Let’s be honest, most people are coming to China to save money.  And so that’s why people work with horrible factories and take stupid risks with bad suppliers–they think that the cost savings will be worth it.  People would like to think that profit margin will take a small hit in the name of “cooperation.”  But my experience is this: when prices go down, quality will be affected first.  Competition is VERY high in China, so the incentive to cut prices (quality) to increase margins is VERY high as well.  People still have to have a set level of income to stay alive and if getting your business means lowering the price, things OTHER than profit are going to take the hit.  The reality is that profit is the very LAST item that will be cut.

Ask your self these three questions about your supplier.  Do they have the right capacity (techniques, processes and machinery)?  Do they have the right people (enough workers, experienced mangers professional communicators)?  Are they using/have access to the right raw materials (can they pass your independent testing)?  If you’re getting a “cheap” price, that probably means that you’re not getting 1 or more of these three questions answered satisfactorily.

3. A lot of things are out of your supplier’s control—and if they can’t control it, they will not take responsibility for it (even if they didn’t tell you they wouldn’t).  The dirty little secret in Chinese manufacturing is that EVERYONE is a middle-man, EVERYONE sub’s out some % of their work.  But nobody will tell you this.  The problem is that they’re usually subbing out to friends and family and they would lose face if they required a 3PQ check on the raw materials they bought from people they were close too.  So you have to do it your self.  If you do not step in and QC your suppliers sub suppliers NO ONE ELSE WILL.  And, when there are problems, the factory will not be responsible for product they didn’t make (even if they bought it and didn’t tell you).

4.  Always be prepared to (re)negotiate!  Everything.

5.  More love for SRI—we’re in the top 10 of China Business Blogs for the last decade!  Great mag on China’s ex-pat culture to boot!

And finally, for the next two weeks I will be speaking in HK and online 3 more times.  Most of the presentations will be at the Global Sources China Sourcing Fair held at the Hong Kong Asia-World Expo out by the Hong Kong Airport.

First presentation: Buying from China: What new buyers need to know.

Oct 27^th at the Fashion, Garments and Accessories Show

Second presentation: Improving your sourcing performance.

Oct 28^th at the Fashion, Garments and Accessories Show

The third presentation will be on online webinar hosted by China Business Webinars.  Nov 3^rd online, Preparing to work in China, what you need to know before you get here.  You can register here.

I just wanted to use this public forum to thank those that sacrifice to make the US better, free and safe.  Thank you to all the veterans.

If you know a Veteran, even if you don’t agree with the politics of wars, thank him or her for all that he/she was willing to do to make your life what it is today.

Uncle Mike, Cousin Kurt, General Petraeus

*Apologies to Fletch and the LA Police Department.

Chinese factories certainly know that they usually only have once chance to get a client with a bid or a sample (hence underbidding and Golden Samples).  And factories know that if there’s bad quality product they won’t get any reorders.  They know all this.

But I’m talking about something a bit different.  Once production has started and mistakes are found, it’s usually the position of the factory, after much negotiations, to offer to redo, fix, replace or repair the product.  Of course who pays for this and how long it takes (and who pays for the resulting airfreight costs) are also always up for negotiations.  And here’s where the lesson comes in.

Sometimes a redo, a fix, a replacement or a repair just doesn’t cut it.  Sometimes it’s just too late.  Sometimes the window of opportunity has passed.  Sometimes a missed date is the death of the project.

I’ve seen this happen a number of times, and it’s not all the factory’s fault.  Usually (most of the time) it’s initially the fault of the buyer.  They are on a very strict time line.  They miss a couple of small design/art dates in the beginning but continue to push the supplier to meet the delivery dates originally agreed too.  The supplier agrees, of course, as they want to cooperate and hope to build some type of relationship that will turn into future orders.  They also assume that since they accommodated the client, the client will do the same later.

Now factories always have issues.  Some are small and can be fix with little or no impact on the delivery date.  But some are much larger and change dates dramatically.  But when push comes to shove, the factory thinks that it can bank on the store of good will they have built up with the client.

Only they can’t.

What factories don’t understand is the West’s infatuation with contractual dates.  You know that if you’re planning on getting your product into a any of the box stores you’ve probably got a 72 hour delivery window that if you miss you’re completely out of luck.  Your factory doesn’t know this.  And the factory’s rework is almost never that fast. Further, if you’re shipping by sea you may have already scheduled your goods to go to port on the closing date—meaning if you miss that date you’ve got to wait at least a week to get on another ship.

Because EVERYTHING is negotiable in China, this almost never happens.  Dates are missed and everyone understands, or at least compensates for the change/delay.  I believe that factories honestly don’t get how important (devastating) a missed date can be.

Because it’s such a huge deal to get a factory to take responsibility for problems (just like it’s so tough to get individuals to loose face and admit mistakes) it’s like they assume that just the fact that they’ve admitted to it and will fix it should be the end all of all negotiations.  But sometime sorry isn’t good enough.

What the buyer doesn’t understand is the quid pro quo that is part of the Chinese business culture.  All those little favors are counted and recorded.  There is a very tacit expectation that each one will be paid back.  The supplier knows that they’ll have issues in the future and while no one likes delays, I know that factories love to have a client in their social debt—it makes the inevitable problems so much easier to work through.  This is, of course, if the client understands the implicit cultural expectations.

Often the buyer gets bugged, rails on the factory for agreeing to dates (repeatedly and even after delays) and then falling through.  The factory feels like they’ve been hit upside the head with a frying pan.  They went out of their way to help and this is how they are repaid!?  Now the project is late, the relationship is flushed down the toilet and it’s a fight just to wind things up.

Once it gets to this point the factory has no incentive to help the buyer.  There is no trust at all that the buyer will keep their word.  The buyer just wants to get their money back, which is not only unrealistic but probably impossible.  The opportunity has passed and late product does no one any good.

Bottom line?  If you expect your factory to go out of their way to cover for your “little mistakes” then you’d better be willing to do the same thing for them later.  And later is ALWAYS more expensive.  Plan you time, your negotiations, your requests and your projects very carefully and with as much knowledge/foresight into future costs and delays as you possibly can.  Do NOT take anything for granted and never ask for favors, even small ones, that you’re not willing to return.

Chinese culture is not the same as in the US, we all know that, but that does not mean that by learning a few words in Mandarin and showing off your Panda House chopstick skills, you will be able to simply overcome those differences.

There are specific measures and methods that you can use to protect your investments and your business in China, playing it safe and understanding the rules that govern China is a great start.

Arbitration can be a very effective tool in basically replacing litigation in China, while litigation has taken on a fairly negative connotation in China; Arbitration has avoided this label for some reason or another.

Arbitration is generally considered more efficient than litigation in many ways, it is usually cheaper and faster, but there are also other benefits.

Basically you are hiring a private judge or panel of judges to solve your dispute. As China’s court system is still in its infancy, there are many tendencies that Westerns find different, confusing or even downright disturbing; including but not limited to the competency of the courts, fairness of local judges and the amount of independence courts actually have.

Arbitration can offer a solution as it is structured to be neutral, more flexible, the results of arbitration are confidential and if you structure the agreement correctly an award is more easily enforced.

Most arbitration clauses between Chinese and foreign companies will agree to arbitrate in either Hong Kong or Singapore, as both of these locations have established themselves and dependable, mature legal systems and are usually the only seats that are trusted by both sides.

While arbitration is very effective when done properly but there are potential pitfalls; here are some to be especially careful about;

• The choice of court o In order for the agreement to arbitrate to be effective, all parties must have agreed in writing to their choice of court, this is often referred to as a choice of court clause.

o From my discussions with scholars and practitioners, this choice of court clause should be included in the party’s commercial contract, as this will save time in the event of a disagreement of any jurisdictional issue.

o Things to be aware of when selecting a court;

• The national and local courts may have a supervisory role or allow for appeals against the award.

• The freedom of choice as to whom the arbitrators of the dispute may be limited by local practice or laws

• The enforcement of the award may be complex depending on the nationality of the award, the safest method is to select a country that had ratified the New York Convention, most noticeably absent from the treaty is Taiwan.

• Defining what is and is not arbitrable in the contract

o This point deals in particular with anticipation of what problems may arise between the two parties

o Art. 17 of the PRC Arbitration Law specifically states that the arbitration agreement will be null and void if the dispute that is sent to arbitration is non-arbitrable

o Disputes that are arbitral include;

• Contractual disputes, most disputes involving property rights (Art. 2 PRC Arbitration Law)

o Disputes that are not arbitrable;

• Labor disputes, administrative disputes, definition of intellectual property rights and most disputes involving family law

• Defining what language the arbitration will be done in

• Defining the actual arbitrator

o Most arbitration institutions offer a single arbitrator or a panel of three arbitrators

o Three arbitrators means paying for all three but it also will more likely result in a stronger and more skilled arbitration experience. Arbitration clauses are a wonderful way to protect yourself, but they must be structured perfectly or they will end up being useless. Remember to stay on the balls of your feet and keep your head on a swivel, it’s the only way to thrive in China.

Here are some helpful links to some of the larger Arbitration and Mediation institutions.

– International Chamber of Commerce

- Hong Kong International Arbitration Center

- China International Economic and Trade Arbitration Commission

Southern Perspective Shenzhen is a boutique consulting firm that specializes in combining manufacturing and the legal system in China. The majority of our time is spent in factories negotiating for legal protection of foreign companies engaged in supply chain activities in China. With combined experience of over a decade in Guangdong province, China’s hot bed for high tech innovation, we have the on the ground skills and knowledge combined with the high level educational standards of one of the top legal education centers for Chinese business law at the Chinese University of Hong Kong.

Matthew Kowalak

SRI”s annual Christmas gift is now available.  Yes, our much awaited annual calendar and screen saver can now be yours–for free (mostly)!

The screen saver can be downloaded from our home page (link on the bottom left) or directly from here!

The calendar can be ordered from either our China or US offices for just the cost of shipping.  Let us know if you want one and we’ll send it right out to you!

And don’t forget, as much fun as it is for us to give this to you, we want stuff too!  So vote for SRI: Best China Business Blog 2008.

Thanks,

DD