11 mistakes commonly made in china for foreign buyers

11 mistakes commonly made in china for foreign buyers

Except it's a good manufacturer for CNC machining,metal stamping ,rivet and silver electrical contact,LML Metal Products Ltd.(Dongguan) Also provide sourcing service with the customers has special purchase, as it located in Dongguan city- china's manufacturing center, LML has rich experience for sourcing in china.
For foreign buyers,there are 11 mistakes commonly made in china.

1 Not knowing the all-in cost of the “China price” 

There is a lot of additional work to do on top of sourcing the product. Here are the key costs that make up the all-in China price:

Investment into Tooling
You may have to provide equipment to the factory.

This is especially common for customised products where a specific mould is needed to ensure the design of, for instance, the logo is correct.  

► Insurance for Tooling
The buyer has to be responsible for the safekeeping of their own equipment and to protect it from being used by the supplier to copy the product.

‘Stewarding’ services are available where a third party looks after the equipment when it is in the factory, and takes it away after the order is completed. 

► Shipping and Logistics
Know the all-in price of shipping rates

► Exchange Rate Volatility
The fluctuation of currency rates can lead to the product price changing after the initial agreement. Try to buy in RMB to lock in the price.  

► Emergency Visits
Last minute long-distance travel and accommodation can be costly but necessary for factory visits, troubleshooting etc.

Having someone on the ground via outsourcing can be less expensive.

2 Unrealistic price expectations

Some small buyers falsely assume that going Asia-direct will be magically reduce their unit price by a massive amount. They fail to realize that pricing is highly dependent on volume. For example, you can buy a set of 6 athletic socks at Walmart for 5 USD. Walmart buys in the millions of units and gets a great price. Even if the buyer found the Walmart supplier, it is highly unlikely that the factory would extend to the new buyer the same pricing concessions granted to Walmart. Most likely the factory sell price to the new buyer is higher than the Walmart retail price for commodity type items like socks.

3 Competing on price alone

As mentioned in item #2 above, it is unrealistic you can build a sustainable business going up against big buyers on price alone. You can try twisting the arm of the supplier to give you a lower and lower price, but until you have some volume, the supplier is not going to be supporting. And if you are only competing on price in the home market, as soon as you start to build some sales volume, the big players will take notice and crush you with their superior buying power and resources.

Solutions: Provide a superior product. Build a brand. Have great customer service…but don’t rely on price alone if you are a small volume player.

4 Thinking in months not years

New buyers often fail to grasp the complexities of sourcing direct from China. They assume things will move fast like when buying domestically. As a result they plan days for actions that will take weeks. And plan weeks when months may be more appropriate. For example, if you are doing anything customized, you may have to wait 30 days for the supplier to get the raw materials, 30 days for production and 30 days shipping. That’s assuming no problems along the way!So many buyers get excited and accept orders from their clients before the China supply chain is cemented and proven effective. Missing your lead times to your first round of buyers is a great way to go out of business.

5: Failure to conduct due diligence
Don’t assume that all the glitz and glamour at the trade fair is how the supplier is in reality – this can only be known with a visit to the actual factory. Another worry is that the trade fair rep is actually an intermediary or trader. 

Due diligence can simply be requesting information, such as a copy of the business license and customer references, to more investigative verification, such as checking on the financial balance and work conditions which require hands-on interviews and undercover work that a foreign buyer would need to outsource. 

6: Failure to audit the factory / falling for the golden sample
Factory audits and quality control (QC) are essential to China sourcing, because the supplier’s guarantee is not enough. Suppliers will also have perfect sample to show you to secure the contract, although the end product can be far worse than the initial sample. In order to make sure the product is of good quality and adheres to international standards, an external QC expert needs to inspect and certify the product. 

7: Who is the project manager?
Very few suppliers will make the effort keep you up to date about the production status – the buyer has to lead the project management. A common problem in China is the lack of communication; it is normal if the supplier does not contact you, although no news does not mean good news. Chinese suppliers will tend to conceal any problems, firstly because they don’

t want to “lose face”, and secondly the fear that you will quickly switch to another manufacturer. This is also why it is important to have staff on the ground in China to monitor and check regularly on the supplier. 

The key to communication is to try and build a good relationship – invest in time and talk to them in person and they will be more willing to reveal irregularities. Agree on steps in the supply chain to review the progress together.

8: Payments not linked to performance
Payment terms before signing the contract will lay out the project roadmap.

Structure the payment terms so that quality and performance is met. Almost never is 100% payment upfront needed to seal the contract. The most common term is 30% down payment and 70% after the goods are shipped, and this can be further elaborated into 30%-40%-30%: 

► The first payment is needed for the supplier to buy materials.
► The second payment occurs only upon confirmation of product quality through QC inspection and certification. ► The final 30% is paid upon receipt and inspection at the final destination.
Some suppliers may not agree to this arrangement for the first order, but if you buy regularly, pay on time and build up a good working relationship and mutual trust then the supplier will be more flexible. 

9: Arm’s length buying
A very common scenario: You meet the dream supplier at the trade fair and they give you the red-carpet treatment. You will get the tour of the factory as quick as possible, then a big dinner and then karaoke and all kinds of after-hours services. The problem is that many buyers are overwhelmed by the hospitality that they feel as if they are now good friends with the supplier. You should have a good relationship with your supplier, but this is not built up in one visit. Be professional; go back to your hotel after the dinner is finished. Otherwise, in return for the hospitality the supplier will expect that you won’t come down on them too hard because of a shipping delay, or you won’t inspect their products. 

10: Leaky contracts
Some buyers, at a terrible risk, just sign a purchase order without any written contract. You should always have a bi-lingual contract signed before you place an initial purchase order because only Chinese contracts are officially recognised in China. 

A common mistake is that new buyers often confuse the Incoterms and the payment terms. Incoterms, or International Commerce Terms, are international pre-defined contractual sales terms that used in a sales agreement to define the responsibilities and duties of each party. Payment terms however define where and how you should pay your business partner. 

If Intellectual Property is involved, make sure you sign a Non-Disclosure-Agreement. If you want

to use your design to produce in China, make sure you apply for a design patent instead of a copyright. As per definition of the Chinese law, a copyright may entitle a supplier to reproduce, publish and sell the produced goods under the copyright. It cannot provide effective protection if someone uses your design to produce a similar product.

Last but not least, include an arbitration clause into the contract. It is more convenient and less expensive for both parties to mediate outside of court  

11: Registering your intellectual property after you have been knocked off
Register the trademark for your product not only in your home country, but also in China. You don’t need to have your own company in China to do this – a registered official patent lawyer can do this and it is definitely cheaper than paying the price after you have been knocked off. 

In China, there are people who register trademarks with no intention of actually producing anything, but rather because you have to go to them to buy your own trademark back. In China the law states: “First to register” and not “first to use” as in most of the Western countries. Under “first to register”, the one who registers first is the trademark owner.  

Welcome to contact LML (www.lmlmetalproducts.cn) for sourcing service.