Seeing the true picture of any manufacturer you want to work with is key. Here are some top tips on how to get there.
China’s manufacturing advantages remain a solid and compelling draw despite growing competition from emerging low-cost supply chain destinations like Vietnam and Puerto Rico. Still, outsourcing production from China can seem complicated and exhausting for the novice importer. You’ll be confronted with choices that you must think thoroughly and with care to find the right outsourcing partner. Here are the most important considerations when exploring and qualifying Chinese suppliers.
You’ve found a supplier on Alibaba that makes the product you want to sell on Amazon. Conversations have begun and you’re thinking that if sales are good, you’ll continue importing from this company. The company’s representative is fluent in English and tells you that they work with many sellers in western countries.
You’re ready to order a sample and have discussed with your legal adviser about drawing up a contract. Everything seems to check out so why wait?
There’s one thing you haven’t yet confirmed: whether the supplier is a trading company or a manufacturer. Adding more layers to sourcing leads to increased costs. Middlemen do not have the ability to customize a product and many make their profit by marking up to the product. Their sole objective may be in matching you to a manufacturer who can increase their margin rather than finding a good price-to-quality deal for you.
- You should ask the company directly about their identity or inquire if they’re providing a service for a cost and if this is separate from the production cost.
- The company may tell you that they have a close relationship with the factory. But will they disclose to you the factory’s address so you can contact the actual supplier? Also ask how the company makes their margins. Unconvincing responses and any resistance from the company’s side indicates that they’re simply matching your needs to a Chinese factory and offer nothing more by way of value.
- Trading companies have English websites and savvy marketing techniques. They generally struggle to answer technical questions pertaining to your product.
- It’s easier to get a lower MOQ from a trading company rather than a factory.
- Ask for the company’s ownership papers – as they may have other partners who get a cut of profits.
Middlemen can send you a fantastic sample and take you to a factory that looks great. But they may have got the sample off-the-shelf and once you’ve placed your order they shift to a different factory that makes your product at a lower cost. As a protection you should specify that the factory cannot be changed without your approval and make them accountable for terms that protect you. Unless you have strong reasons to try a middleman’s services, such as a lower MOQ or a test product in a niche you’re exploring, you’re better off partnering with a manufacturer.
Conduct a background check of the supplier and ask them for information that offers assurance about their reputation. Include these steps in your supplier vetting process:
- Compare the company’s profiles on Alibaba, Made in China, Global Sources and other directories to check if their location, address, phone number and other identifiable information are the same on all those websites.
- If the supplier has participated in trade shows, such as the Canton Fair, it is an encouraging sign. Search for the supplier’s name in the exhibitor’s list on the trade fair’s website.
- Read customer reviews of the supplier on online directories. Also check their reviews on Google and Baidu.
- Ask for basic information which should include the following:
o The number of employees at their factory
o Major product line
o What is made in-house and whether they sub-contract any process
o Sales numbers in domestic and export markets
o How many western importers do they work with, or are their buyers primarily in Asia, Africa and the Middle East?
o If they’re familiar with the safety and product regulations applicable to your product
An established supplier will give you satisfactory answers to these questions. If the supplier doesn’t answer plainly or you suspect they are just telling you what you want to hear, they may not be the partner you need.
While it is not necessary for your supplier to have considerable experience exporting to the USA or Europe, it can make the relationship smoother because they will be familiar with your requirements. The supplier will know what you need from them for due diligence and be cooperative throughout the process. They will provide the information and documentation you require to verify that everything checks out.
A Chinese manufacturer that has many clients in western countries will have the capacity and capability to fulfil large orders. You’re less likely to encounter issues related to quality or overall service as that company needs to maintain its reputation before global buyers.
As far as business credentials are concerned, performing the necessary checks is a matter of asking the supplier for specific documents. There is a chance that the supplier may give you fake documents, so you must be prudent and verify their authenticity.
- Business license, the 18-digital license number confirming that the company is a legal entity in Mainland China.
- Bank account certificate to ensure that you’re making payments to the business account and not a personal or offshore account.
- ISO 9001 certificate. This is the document that ensures the manufacturer has quality management systems that meet the requirements of international standards.
- Foreign trade registration certificate, which is required by manufacturers engaging directly in import/export activities. This is just a safety check to ensure that the supplier won’t use a trading company to fulfil your orders.
- The customs registration certificate issued by China Customs to importers and exporters that need to make customs declarations.
- A test report proving that the manufacturer can make products to the standards you require (less than 5% of suppliers are able to provide a test report – the burden of compliance falls on you, as discussed further).
The supplier should be able to provide at least two documents from the list above: their business license and ISO 9001 certificate. The company mentioned on the license should be the same one stated in their pro forma invoices and email signatures.
Check the certificate’s validity date and see if the scope written on it covers the manufactured items you will sell. Companies are required to renew their ISO certificates by submitting to a reassessment process. It is quite easy to receive certification but much harder to maintain it. To maintain certification companies must demonstrate constant improvement and proper record-keeping. You can always err on the side of caution and contact the registrar to ask whether they’ve accredited the supplier. If the supplier changes registrar companies often, that’s a red flag.
The importer is responsible for product certification and safety compliance. For example, if you’re importing toys from China, you need to comply with the Consumer Product Safety Improvement Act (CPSIA), and obtain ASTM Test Reports from an accredited third-party lab, Children’s Product Certificate (self-issued), and Lab testing plan (self-issued).
Chinese suppliers tend to never have all the compliance documents you request. They may give you an old lab test report, which isn’t enough to rely on. Even if the supplier provides a complete set of documents, who’s to say if they sent their own or a different manufacturer’s product for lab testing? The supplier may use materials that are different from those for the test sample.
The bottom line is that you must submit a sample from your product batch for lab testing. China is home to many international laboratories, including SGS, TUV and Bureau Veritas. Have someone you trust collect the sample as the supplier may send one that did not originate from your batch.
Differences in Chinese and Western business cultures can emerge as pain-points during discovery, negotiations and even in the later stages of the relationship. The language barrier can cause confusions and misunderstandings if the supplier’s factory manager doesn’t understand your instructions. The manufacturer may have an English-speaking staff but often they are not the decision-makers and mainly may focus on pleasing and marketing to you.
These issues don’t arise when you hire a sourcing agent. The agent assumes responsibility over communication and the entire engagement, from reviewing your product specifications and drawings to sending quotes from relevant suppliers and performing factory audits. They will also send samples, do in-process quality checks, and handling shipping and customs.
Keep emails simple: You will get a sense of the supplier’s English fluency when they reply to your introductory email. Their grasp over the language may seem good, but there is a chance that they may be using an online translator to understand you fully. Not only is this cumbersome for the supplier but inaccurate translations can cause mix-ups and the finer details of your message may be lost.
Use short sentences, simple words and bullet points. Share photos and visual information if that can get your message across more clearly. Avoid long email chains.
Follow-up via call or video chat: Review the contents of your email with the supplier via Skype, WeChat or QQ. This is advisable whether or not the supplier has responded to your email. By going over your requirements, you leave no room for confusions. As Chinese suppliers hesitate from asking questions out of a fear of ‘losing face’, the follow-up is also a chance to discuss key details and encourage the supplier to seek clarifications.
Be direct: State your requirements directly and assertively. Tell the supplier how your product should look and what you won’t accept. This will cut down the back and forth, and lead times won’t be affected unnecessarily.
Talk to the decision-maker: Communicate technical specifications to the factory manage or an English-speaking member of the factory staff who is involved in production. If you need to emphasize some terms or want to know how your order is coming along, getting in touch with those who play a hands-on role in manufacturing is helpful. If it isn’t possible to engage directly with someone who works at the factory, the supplier should designate a single point of contact at their office to take your calls and emails.
The goal of negotiating is to find the best quality to price ratio. Although Chinese manufacturers have thin margins, they are willing to give you a good price if they believe you’re a good buyer. This means that you don’t keep switching buyers and have intentions of a long-term relationship.
Compare different suppliers based on price, MOQs, material, packaging, lead times and other factors. Use this data at the negotiating table to tell the supplier about the advantages their competitors are offering. If another factory is offering a lower price and better lead times, you could say that will reduce your risk and allow you to bring products to market quickly.
When you provide your target price, you may be putting yourself in a vulnerable position as your competitors may have negotiated lower prices. Put the ball in the supplier’s court, and request that they share their best pricing for different quantity tiers, such as for 1,000, 5,000 and 10,000 units.
If the supplier does not change prices by much, that may be their best price. To be sure, you can tell them that you’re getting aggressive price offers. Reiterate that you’re interested in working with them as your supplier for their quality, customization options or whatever advantage they offer. The supplier may give you a better price. Always confirm that the price they’re stating is the final price. If your research tells you that the supplier’s price is far off from their best, ask pointedly for better pricing.
Outsourcing production to China is complex. Seek out all the help you can to avoid costly mistakes. A sourcing agent can help you navigate the chaos and hurdles while supporting your bottom line and growth.
Sourcing Allies is a team of expert China sourcing agents that has helped western customers manufacture and source products from low-cost regions since 2006.
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