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Category : Export

Working well with Chinese suppliers

Tanya Crossman

Tanya Crossman

Last week Renaud wrote a piece about working with Chinese suppliers I enjoyed.

He starts out by saying that when you first start working with Chinese suppliers, you may notice a need to change certain habits.

It is very important to define the product requirements in the smallest details, including the labeling and the packaging.

I’m with him here! It’s important not to make assumptions. Don’t rely upon the supplier’s “common sense”. The problem with this isn’t that your supplier is “stupid” but rather that he doesn’t know what you’re thinking. You have a clear idea in your head of what a label should look like, whether you realize it or not. It may be that you think it “obvious” what a label should look like. If you do not communicate these specifics clearly, don’t complain when the supplier goes with his own assumptions of what makes for a good label!

Labeling and packaging are aspects of production we have changed our system on over time. Originally, all product was shipped to our warehouse where we did our own quality control and per-piece inspection, before labelling and packaging every piece by hand, ensuring no mistakes. At the time, this was something our supplier could not handle to a standard which was acceptable to us. Over time, as we have trained our supplier and improved other aspects of production, we have moved more of the labeling and packaging tasks to the production factory. When punctuality, quality, quantity, and color tolerances were all happening well, we added these extra jobs.

Quality and timing are never guaranteed. Expect a very bad experience, and you might be pleasantly surprised.

If by “expect a bad situation” he means “plan for the worst” then I am in total agreement! Things go wrong. It happens. It happens when you’ve made the same product at the same factory with no problems before. It happens when you have time to recover and when you don’t. Having a contingency plan ahead of time saves time and stress when those unforeseen problems crop up. Some questions to think about:

  • What will I do if the product is not ready on time?
  • When do I need it, as opposed to when I want it?
  • How will I respond if product quality is unacceptable?
  • How do I prioritize different production values (punctuality, cost, quality…)?
  • What scenario would force me to cancel the order?

Monitor production closely and micro-manage the whole process.

Yes, yes, yes! Keep in regular contact with your supplier – make sure you know the specifics of what’s happening with production. This kind of micro-managing helps not because your supplier is not going to look out for you (although that can be the case on occasion) but rather that your supplier may well have a different set of values to you. He may value punctuality over quality, or price over time – whereas your values may be opposite. This shows out when things go wrong (which they inevitably do, eventually, even to the most reliable of suppliers). When a choice has to be made -such as “I can either get them done on time OR at the price/quality promised” – the supplier will do what seems best to HIM, which may not be your own preference.

If you know what’s going on at every step of production, you have a chance to step in and make those calls yourself, rather than finding out weeks later what the supplier decided to do. We have several times averted what could have been problematic issues simply by asking specific questions and letting our preferences/values be known. When production was inevitably delayed, we knew early enough to accomodate the delay, rather than promising a delivery date to our own buyers we would later find out we could not keep.

Don’t take everything they tell you for granted. Once production is under way, in 50% of cases you are not told the truth.

I don’t entirely agree here. Although there certainly are unscrupulous suppliers out there who will lie and cheat and do whatever they can to make a fast buck, these “deceptions” aren’t always so malicious in intent. Sometimes it is simply a case of different priorities, leadership styles, or manners of dealing with conflict. While it is good to assume you don’t have the whole story, let it be a healthy awareness rather than an overly suspicious nature.

Don’t promise anything beyond the next order. It is useless. Your counter-party thinks short-term and in a distributive manner (“there is a pie to share, and I want the bigger half”).

Again, I’m not in total agreement here. I absolutely believe you should never promise a future order you can’t guarantee you’ll be placing with your current supplier, longterm relationships are very beneficial. Saying you are going to place an order later won’t gain you any extra leverage with your current problems, but a history of placing regular orders will. Chinese suppliers look more at your past history than at future possibilities. While this means you have no benefit when starting out, it does mean there is benefit in sticking with an imperfect but proficient supplier rather than constantly looking for a better supplier every time. Over time, a supplier will learn your values, know what details you get upset over, and future orders (and problems) will be worked through more smoothly. (This is especially true when you work with smaller factories).

I remember working with a buyer who had set up a very strong (nearly bullet-proof) system for avoiding getting burned. . .He had a theory that once a relationship has turned sour–for whatever reason–he’d better cut his costs and stop everything right away with the supplier in question. I saw first-hand how brutally he acted against a poor supplier who had committed an involuntary mistake. . .That supplier got about 100,000 USD worth of product cancelled, and the importer lost a relatively good supplier. The bottom line is to try to understand the real situation. It is not easy, but it is far better than assuming the worse and resorting to knee-jerk reactions.

Here’s the important part – if you persevere through small/unintentional mistakes, problems that come from ignorance or bad planning rather than from malicious intent, you can train your supplier over time, improving their quality while building a relationship. Giving up at the first small sign of trouble means you’ll never realize the benefits of a long-term supplier relationship.

Do you have any long-term relationships with suppliers you cherish?
How have your supplier relationships changed over time?

Leverage – having a China presence changes the game

Tanya Crossman

Tanya Crossman

Today we’re looking at a recent post on Silk Road International. David talks about leverage, and how even a careful buyer can get into trouble when they don’t have enough of it.

David uses two cases studies to illustrate this. In one case, good preparation did not make up for a lack of in-person inspection, and a whole shipment of bad product resulted.

They had done almost everything correct.  But they didn’t have on-sight QC and when their product showed up incorrect, the small percentage (10%) they had retained for just this kind of situation was not enough to compensate for an entire order of unusable product.

In the second case, the company again prepared well, but full payment upfront meant there was no leverage for fixing problems down the track.

Both companies had the same basic problem–without some sort of physical presence in the factory neither of them had any leverage.  Once there were production problems (that cost time and/or money to resolve) the factory had no incentive to fix or replace anything.  And since neither of the companies had a presence in China they had no means of enforcing any of their demands (or even their originally contracted standards). I’d like to say that this is unusual and these two companies just had bad luck.  But the reality is that this is more common that not.

Having a presence in China makes a big difference when it comes to leverage in negotiations. If your supplier knows you can just get in a car or on a train and visit in a few hours’ time, he has greater incentive to keep you happy, and to resolve any problems that arise. If he knows you will visit to inspect product in the factory during production, he has a greater incentive to watch over production quality. If you are not in China yourself, having a trusted employee or agent on the ground can help.

Tying payments to QC inspection reports helps a ton.  As does being in the factory for critical production points (or having someone represent you there).  Remember, if you’re not doing your own QC or at least tying payments to QC reports, you’ve got no reason to expect that you’ll get what you’ve contracted for–you have no way to enforce your standards and the factory has no incentive not to save as much money as possible.

The important thing is to give the factory an incentive to meet your requirements (be it in terms of quality, punctuality, or cost). We regularly work with small factories. This makes us a higher priority customer (our orders form a larger part of the factory’s bottom line) but quality control can be a big issue in the beginning. We use a range of methods to improve quality. Continuing to work with the same factory over time, however, has many long term benefits, not the least of which being the build up of guanxi.

Our strategies included:

  • sending out own staff to train the factory’s quality inspectors
  • a contract stipulating we only pay for items that have passed our own independent QC (items than failed inspection were returned; we would pay for any that were suitably rectified and sent back to us)
  • a bonus for orders with a defect rate under 10%
  • when quality standards rose across the board, we focussed on improving adherence to schedule

One last point from David’s article:

It’s the same thing if you’re sourcing product or asking for samples.  If there is no incentive other than your word that “I’m going to place a really big order–there is so much potential here for us to make a ton of money!” then there is probably no chance that you’ll be anyone’s priority project… Remember, foreign clients are now a serious RISK.  The tables have turned in the last three years and you are now seen as a liability not an opportunity until you prove otherwise.  Without significant leverage, budget-conscious risk-adverse Chinese factories will just not take the gamble.

It’s a big risk to assume that as a foreign buyer you are automatically an attractive customer that any supplier would love to have. Even if you have been buying from China a long time, a new factory has no guarantee that you will buy big from them. There’s no shortcut – be a good customer, and over time you will prove yourself worthy of a supplier’s best efforts.

European Imports – changes to the ENS come into effect soon!

A quick note to point you to Renaud’s post today on the Entry Summary Declaration (ENS) and changes for shipping to Europe. The change was announced some time ago, but comes into effect right around now, so it’s a good time to look it over and be sure your shipper is in compliance.

There’s good information about the ENS on the websites of WCS Cargo and Hapag-Lloyd, as well.

What to do when your supplier sees no reason to continue

Tanya Crossman

Tanya Crossman

David Dayton wrote a good “story” post this week. He tells the story of a situation his company was in where their supplier did not want to continue working on an order, and the strategies they employed to motivate production.

No matter what the reason, when your factory has officially passed the we’re-losing-money-on-this-project point, expect to see product laying around, no more QC, no managers, and expect no one to answer your calls.

Here are David’s four main action points – how they moved things forward:

1. We continually reassured them that even though things were late we were indeed still interested in the remaining qtty’s.
2. We then reassured them that we were going to not only pay for what we ordered, but we would pay on time and pay for any additional costs that were due to changes or our mistakes
3. I went into the factory and met with the owner.
4. To get what we wanted (product done correctly, at the same price, ASAP) we basically gave in on everything that we could that didn’t affect product quality or cost us cash out of pocket.

In our situation we had two positions of strength–the outstanding balance of payments and our physical presence in the factory.

David also makes a good point about dealing with factory managers, and how they can be part of the problem:

Managers, the very people that you’re depending on to help you push through difficulties, may be the problem.  Just like back home, different departments in large organizations work on budgets and they allot time to specific projects.  They when they overspend in either time or money, they get in trouble.  Precisely because they are tied to these specific limits they can’t always see the big picture.  Sometime a single project that busts their budget is the worst thing they can imagine and so they freeze up or stop the hemorrhaging in their department.  When this happens, you need to get up a level, get above the managerial trees and recruit a GM or owner to direct these lower lever guys to do what’s best for the factory (as opposed to what’s best for their personal fiefdom).

This is one of the reasons we prefer to deal with smaller factories. That way we deal with the boss, the one who stands to lose and gain the most by getting the order done right. The boss of a small factory has the power to rearrange everything if he decides it is necessary.

Read the full story here.

Does Negotiating Low Prices lead to Lower Product Quality?

Danny Coyle

Danny Coyle

Renaud at Quality Inspection Blog ran a post last month discussing how price negotiations can sometimes have a negative impact on production quality. The basic idea is this: if you negotiate a very low price, a supplier may get the margin he needs by skimping on the quality of the end product.

“A Chinese factory has intense pressure to grow up fast. Every day they hear stories of other manufacturers that achieved impressive growth with aggressive tactics. The temptation to do the same is very strong…  importers should not count on a supplier’s ethical standards.” (read the article here)

Recently we ran into a similar situation when we negotiated the price for a new product with a supplier we’ve been using for 5 years.  He’s developed a lot of his processes and quality control measures because we have sent our own people to his factory to help him do it.

The new product is expected to sell hundreds of thousands of pieces.  So we asked him to give us his best price and continued to put pressure on him to give us a rock-bottom price.

He began to manufacture the product (after sampling) and gave us the first samples off the line.  We received them and they were sub-standard.  Basically, they were falling apart at the seams (literally).

I called him and asked what was going on.  He complained that we had driven the cost so low that this is what we get for that price.  I told him that after 5 years of training him on our quality standard he decided to abandon it.  He knows we don’t accept product like that.  He gave me the ultimatum (take it or cancel it) and I hung up on him.  A few hours later, our staff found a way to solve the problem, communicated it to him, and he’s back on board.

So it’s not always a price issue, sometimes it’s just a China issue!

Product Testing: Navigating the complicated process to success

Tanya Crossman

Tanya Crossman

Last week David Dayton at Silk Road International wrote a post on testing procedures in China. It’s clear that his experiences have been frustrating, to say the least. Testing our products for lead content was a fairly simple matter (relatively speaking!) but in other industries the quality testing can be very difficult to complete.

He gives some good advice on how to improve your chances of getting testing completed correctly.

First, if at first you don’t succeed, try, try again! David’s experiences indicate that testing varies from factory to factory, so if your product fails the testing, it could be worth re-sending to another certified factory.

Three clients switched testing companies after products failed their first round of tests.  ALL three had the exact same products pass the tests after they switched to a different testing company! We pulled and sent all the SAME samples for ALL three clients and mailed them ourselves to the two different testing companies so I can personally testify that NOTHING changed in the samples between tests.  But the results were different—radically different.

If a mistake was made in the testing procedure, many places will re-test for free – but that would mean knowing that a mistake was made, and then getting the factory to admit it. Not easy!

If there are problems with the testing methodology you can get the tests redone for free (at least that’s the policy of the two companies that we’ve been working with).  The problem is, unless you get them to admit themselves that there is a mistake/problem, you’ll never know that maybe you could have either passed the tests or you could have your stuff retested again for free.  This is significant when testing for a single item can cost thousands of dollars.

Another big issue is that many Chinese suppliers do not understand the importance of product testing. With such a range of short cut options available, why pay so much money to test every product every time?

The fact that we are actually testing our own products when suppliers could either buy fake certificates of completed tests (ANY test you want: LHAMA, RohS, CPSIA, ASTM, etc., 1,500RMB) or just change the dates on older tests (“It’s all the same materials.”) was completely not understood.  In fact, the idea that we would be testing and were tying payments to test results made more than one factory very nervous.  We had one back out completely and two others expressed concerns along the lines of, “But we’re not sure if we can control all the materials.  What do we do if they don’t pass the tests?”  Which is precisely the point—you need to “control all the materials.”

David includes a snapshot of their process for getting testing done for products, and holding suppliers to those standards.

For us the processes usually goes something like this.  Contract out with the supplier for the testing sample process—these means that we pay for what is often free, but we get agreements (in Chinese) that we can enforce later when we have to make sure that production matches 100%.  Pull our own samples, send to independent third party testing company, sign new contracts and initiate PO’s with suppliers and then pull, test and repeat.

Of course, a good process doesn’t ensure a smooth run. While they may not understand the need for testing, suppliers understand the investment of time and money in the testing process. This investment, they realise, ties the buyer to them – to their product specifically.

Where it gets really frustrating for us is [when] suppliers realize…they now have the upper hand.  Since they are now “legit” they figure that can raise the price as much as they want (and request copies of our testing results) to release any goods. . .This type of problem is difficult, but usually resolvable; even though getting past these changes and into actual production can sometimes cost a lot (time, money, face, emotion).

What’s not resolvable is when a factory decides that they need to save money (aka: make more profit of this one order) and change either some of the raw materials or change part of the already approved production processes. If either of these things happens when doing both pre-production and in-line testing the supplier is going to get caught almost every time–but it still happens, often  Of course, now the entire production run will be rejected.  And if you didn’t have a fight on your hands before, you most likely will now.

As you can see, the testing process is long and difficult, on many levels. The bottom line is, though, that for many industries this testing is essential. No matter how difficult it is to monitor the process and ensure that what you receive from the supplier really does match the required quality standards, YOU as the importer, will be the one held accountable should there be a problem down the line.

After having gone through this process over the last 18 months with 4 different clients in completely different industries, I would be completely shocked if all the product in the US that is “CPSIA Certified” really is, in fact, certified.  There are just too many tantalizing options for individuals in the process to cut corners and take a huge one-off profit; there are too many people that just don’t understand how important testing standards are; and there are just too many people involved that will NOT be held accountable if, in 5 years, some component is found to not comply with the standards.

What about you? What are your experiences with product testing in China?

Creating and Enforcing Quality Standards

Tanya Crossman

Tanya Crossman

A quality standard is essential, no matter what you are manufacturing, or where you are manufacturing. Creating a quality standard that accurately reflects your requirements for the finished product is a very important step. Creating that standard is not enough, however. It must be communicated and then, most importantly, enforced.

Renaud at Quality Inspection Blog posted an article last week that is a great rundown on creating and enforcing quality standard for manufacturing, specifically in China.

He gives four steps to help in the process:

1)  Insist on getting a “perfect” sample

2) Define tolerances wherever applicable

3. Set a limit on the proportion of defects

4. A quality standard suffers no exception

The first three steps all happen before production begins. This is important to note. Doing your homework and putting quality systems in place must happen BEFORE you pay a deposit and production begins. Once you have built rapport with a factory over time, this may be less important, but for a new factory or a new product it is essential.

The “golden sample” is much talked about. Manufacturers in China will often produce a very good initial sample in order to clinch an order, knowing that final production will be of a different quality. It is hard to hold the factory to the original sample when final production is half done. Factories know it costs time and money to go back and correct the standard.

In China, and in South-East Asia in General, factories know that sending very nice samples is what helps them get orders. These perfect samples (prepared by experimented technicians who take their time) are usually better that what can be made in mass production.

Renaud’s call to obtain a perfect sample works, however, because of his suggestion for what to do AFTER getting that perfect sample:

You should write a note about what has to be EXACTLY similar to the perfect sample (e.g. the overall outlook, the color, the function, etc.) and get your supplier to sign it.

This technique might not guarantee the factory sticks to the quality of the initial sample, but it is certainly better than nothing, and gives you leverage in any negotiations later on.
Renaud’s fourth and final point happens after production has begun, and quality inspections start. Having a quality standard meticulously outlined is of no use unless it is also enforced. Renaud starts with a hypothetical situation that is all too common in real life:
Let’s say a supplier is late, you negotiate a delay with your customers, and before shipment you notice that quality is less than desirable. You still prefer delivering the products, rather than cancelling the order. So you tell your supplier that he can ship out and that next time should be better. The problem is, the “exceptional tolerance” will become the de facto standard for the factory. Count on them to remember that you can accept less-than-perfect products.
The phrase “count on them to remember” really strikes me. By accepting products below your stated quality standard, you set a new standard. While sometimes the importance of shipping on time while outweigh the desire for top quality, make sure you take into consideration the possible implications on your long term relationship with the factory. Will accepting short term hassles save you problems in the future?
Chinese manufacturers tend to have a “can’t do” attitude after an order production has started. Two of their favorite expressions are “cha bu duo” (it’s off, but not by much, so you should accept it as is) and “mei ban fa” (there is nothing we can do about it now, no need to keep pressing this issue). You should fight their natural inclination. Ask for re-work and re-inspections, even if it costs you 10 days. This type of efforts pay off handsomely in the long term, as long as the factory can reasonable achieve your quality standard.

It’s important to note that final point: “as long as the factory can reasonably achieve your quality standard”. Creating and enforcing a quality standard only works as long as you check out the manufacturer before you begin, to make sure that they are capable of the standard to which you wish to hold them.

Read the full article here.

What tips do you have for creating quality standards?
How have you enforced your quality standard with manufacturers?

Rising Labor Costs in China – How it Affects Manufacturing Exports


Tanya Crossman

Tanya Crossman

There’s been a lot of talk around the world about rising labor costs in China. There is no longer an unending stream of workers prepared to accept the low wages which sufficed in previous decades.

Factories are offering better salaries and improving working conditions in order to entice the workers they need to fulfill production, and still coming up short. These additional costs are being passed onto buyers abroad, and therefore a “Made in China” tag is more expensive than ever.

Here’s a few articles on the subject that we’ve found helpful:

How Rising Wages are Changing the Game in China (BusinessWeek)

Doesn’t China have an inexhaustible supply of cheap labor? Not any longer. From the textile and toy factories of the south to the corporate headquarters and research labs in Beijing and Shanghai, the No. 1 challenge today is finding and keeping good workers. Turnover in some low-tech industries approaches 50%, according to the Institute of Contemporary Observation, a Shenzhen labor research group. Guangdong Province says it has 2.5 million jobs that remain unfilled, while Jiangsu, Zhejiang, and Shandong provinces say they, too, face shortages of qualified workers. “Before, people talked about China’s unlimited labor supply,” says Zhang Juwei, deputy director of the Institute of Population & Labor Economics at the Chinese Academy of Social Sciences in Beijing. “We should revise that: China is facing a limited supply of labor.”

This is not all bad news. Yes, it means the costs for companies exporting are going up, that international buyers will have to pay more for goods made in China. It also means, however, a strengthening of the domestic market. There are opportunities for those importing to and selling in China.

We here at Imports Oriental are very pleased to see worker salaries going up. It may not be good for the bottom line of exporters like us, but it’s good for the workers we all rely on. Factory workers are not as expendable as they once were, which should raise their value and result in better conditions. We’re glad to see the people of China gaining a share of the wealth being created here.

Made in China Remade (Project Syndicate)

Rising labor costs are inevitable. China’s government introduced tough labor laws and a minimum wage in 2008. Recent policies to improve rural economic conditions have slowed the flow of migrants from the countryside. Workers are demanding higher compensation to match the fast-rising cost of living in China’s cities, as manifested in an ongoing and high-profile labor strike at a Honda plant based in Guangdong. Salary was the major point of contention.

One of the reasons for the labor shortage is that some people who once would have traveled to the city to seek work are staying closer to home in the interior provinces, as opportunities are growing there. We’re also glad to see this – it means fewer families split in half, with parents working in the city and children staying back with grandparents to attend school, seeing their parents only once or twice a year.

In a macro view, changes that improve the lives of workers here are good for the country as a whole and, we believe, for those of us who engage in business here.

China’s Rising Labour Costs (Euromonitor International)

The Chinese work force now varies between highly-skilled technical workers and low-level manual labourers, ensuring that all types of labour requirements can be met. This has allowed China to become a major manufacturing centre, with products ranging from textiles, to basic manufacturing and high-end electronic goods.

Manufacturing in China is maturing. While price is one of the major reasons companies choose China for their manufacturing needs, it is not the only reason. Countries such as Vietnam, India and Bangladesh, to name a few, also provide low-cost manufacturing, yet China remains the location of choice for many businesses. China has more to offer than cost.

Rising Labor Costs In China (Fibre2Fashion)

China possess high skill level, and quality fabrics. The country has good familiarity with the American retailers. Whilst these factors are beneficial to them, high import duties, and rising labor costs does not favor them from the views of apparel manufacturers. . .China might not lose its manufacturing base owing to its huge domestic market, but there may be a perceptible shift towards high-end goods.

Other countries may undercut on price when it comes to low quality garments, but China is still the place to source high quality items on a budget.

Understanding the Chinese Yuan Revaluation and its Impact on Import/Export Business

Tanya Crossman

Tanya Crossman

There has been a lot of discussion both online and offline regarding revaluation of the Chinese Yuan. Commentators have dissected the statements made and the implications to China, the US, and international business in general. There are scores of articles all over the web with a wide range of opinions on the topic.

We’ve listed here a few of the articles we’ve found most helpful for understanding what has actually happened and how it will affect Chinese exports.

Renaud’s post is a great place to start. It’s easy to follow without reading anything else about the situation and gives a simple breakdown of the likely effects for importers.

We liked this post on Chinese Negotiation, cutting through the mess of online opinions to give a little more clarity. Stan at China Hearsay wrote a lengthier and more personal take on the situation that is also worth a read.

China Real Time Report (of the Wall Street Journal) put together a series of articles looking at the revaluation through its potential impact on various industries. Their article regarding the impact on General Manufacturing was most applicable to us, but there are also articles that focus on PropertyBanksTechnologyEnergyConsumer Goods and AutosTransportation and Tourism and Commodities and Metals.

Finally, if you want to get right down to what was actually said, they also published a translation of the statement given by the People’s Bank of China on Sunday.

If you’ve come across other good articles on the Chinese Yuan revaluation, please share them with us in the comments section below.

BOPS – the Balance Of Power Shift

Jill Coyle

Jill Coyle

Read a great article on Chinese Negotiation Blog recently about the power struggle between supplier and customer. They use the term “BOPS” (Balance Of Power Shift) which I love! It succinctly defines what I’ve usually just called the cold shoulder.

I’ve always found it rather confusing when suddenly a supplier just didn’t want to do a sample for us (a supplier we’ve used for 6 years), or when a supplier just took his sweet old time when we were telling him, “This could be a moneymaker if you finished it THIS YEAR!”

Read the full BOPS article here

Everything is about relationship here in China. One thing that helps is to just continue to build those customer-supplier relationships – go see your supplier when possible, try to do negotiations face-to-face, go out to lunch, etc. It’s much harder for a supplier to write you off when you’re right there in front of him.

Building long term relationships with our suppliers in a high priority for Imports Oriental. To read more about how we’ve improved product through working with our suppliers in person, check out these  two articles