Sourcing Strategy – Mistakes You Must Avoid When Sourcing from China

China has emerged as a hotspot for businesses all over the world. When it comes to sourcing, most businesses see value in meeting their sourcing needs from China because of the many benefits of sourcing from China. Scalability, low cost, and the convenience involved in sourcing from China make it a great place for companies to explore and meet their sourcing needs.  

But there’s more to sourcing from China than just its obvious benefits. To have a successful sourcing strategy with a supplier from China, you need to develop certain skills to understand the nuances of how to succeed in China. Not every deal with a supplier from China will benefit you. You may end up making mistakes that could cost you dearly when sourcing from China. Several sourcing issues relating to product quality, delays, and miscommunication with your Chinese supplier could result in you getting the short end of the deal. You may have started out with the aim to reduce costs with your sourcing strategy.  But you could just end up costing your business a lot more in the long run with certain mistakes.

There’s good news though. With a little bit of guidance, you will be able to avoid these mistakes. This will help you make the most of your sourcing strategy and allow you to reap the benefits from a mutually beneficial business relationship. 

To avoid the most common mistakes when sourcing from China, you first need to know what these mistakes are. Read on to find out.

Poor sourcing strategy planning

If you want your sourcing from China to be successful, you need to plan your sourcing strategy properly. Dealing in supplies and money with foreign liaisons can get complicated without a well-defined sourcing strategy. A plan will serve as a road map to ensure you have clear goals in mind and achieve them through your sourcing.

A good plan is necessary to make sure you have clarity on price, functionality, and product quality. It is also essential to make sure there is timely delivery of your orders. Identifying the right suppliers can be done using the internet, trade shows, and even social media, but it is necessary to verify them before proceeding.

You must also have a plan for the sourcing methods to be used, whether it will be through direct purchase or on a commission basis. Quality management is necessary and you need to make sure you get insurance to protect yourself in case any issues arise.

Failing to audit the supplier

It is imperative that you audit the factory of the supplier in China before getting into a contract with them. You can either do this personally by paying a visit to the Chinese factory or have a third party auditor do this for you. In person visits are a good idea for multiple reasons. They will allow you to build a personal connection with your supplier more effectively which is the basis for developing and sustaining long term business relationships.

In person visits will also allow you to get a good idea about the factory, its working conditions, quality control practices, and other key aspects of a business. If you can’t make it in person though, third party auditors will be able to do a good job of this for you.

You need to have a checklist of what you expect so that you can create supplier standards for your business. This must include:

• The quality standards expected
• The production capacity as per the current as well as future needs of your company 
• Technology capabilities

Creating supplier standards will give you a clearer idea so that you can meet these standards more easily.

Not ordering product samples

Not all suppliers will be able to produce products that meet your every specification. You may have clearly stated your requirements and specifications, but that doesn’t mean the supplier has gone through them all. You simply cannot act in good faith and assume that you communicating your specifications will mean that the supplier has followed them. It is essential that you order product samples to inspect before finalizing on any agreement with a supplier from China. Make sure you check the precision of samples ordered. If the quality is good but you require certain revisions, make it clear in the beginning. If however, the quality is poor or a full batch of samples is faulty, you will want to avoid that supplier.

There is a chance that the supplier will give you a “golden sample” which represents the best product that meets your specifications. This is done in an effort to win over your business. This may even have been done at another facility to impress you and persuade you to sign a deal. To make sure you’re getting products as per your specifications, you can hire a sourcing agent who will carry out inspections to ensure that products meet your specifications.

Failing to draft an air tight manufacturing agreement

To protect yourself in the future if issues arise and make the specifics of the business relationship clear, you need to sign a carefully drawn up written agreement. This must include, in as much detail as possible, specifics relating to:

• The parties involved
• Payment terms
• Quality management, logistics, price, and sample terms
• A clear definition of desired product quality, satisfaction, and timely delivery   
• Liability for contract breaches
• Dispute resolution
• Choice of law
• Attorney fees
• Arbitration clause

Don’t just use the same template as a previous contract. While many clauses may be the same, cross border negotiations require special care and must be treated as such. Make sure you get an attorney to review the written contract and explain the implications of the contract. There may also be certain issues that you need to be aware of under Chinese law. Understand the legal nuances of the contract before signing anything.

An airtight sourcing contract will leave no room to spot loopholes in case issues arise and will protect you in case of disputes with your Chinese supplier.

Failing to perform due diligence on suppliers

If you want to avoid being scammed, you need to make sure you carry out due diligence on the potential Chinese suppliers. Start by checking online reviews from previous customers and see if there have been any problems with the business. You should also review the website of the supplier to see what they have to offer, but make sure to follow that up with a phone call to the supplier.

You should also verify the registration and certification of the supplier, especially if they’re not already listed on a verified B2B platform. Ask to see the Chinese business license of the supplier as this will give you details about:

• The company’s name
• Company address
• Registered capital
• Legal representative
• Official company information

You should also verify the supplier’s local registration with the Chinese Administration for Industry and Commerce (AIC) or visit the local office yourself.

Poor cost forecasting

You may already feel like you’re on top of the world imagining the profits you’re going to be making when you get a quote from a Chinese supplier. Don’t get ahead of yourself though. There may be several hidden costs that you aren’t factoring into the cost of your product. You need to consider the total landed cost when forecasting your costs and not just think about the unit cost quoted. Doing this will give you a more realistic understanding of how much you will end up paying your Chinese supplier.

Lack of protection for quality issues and payments

Your China sourcing strategy is an international one so you need to put into effect ways to protect yourself and your money in case disputes arise. A written contract will come in handy in such cases. You should also make sure you use a safe payment method which will make it easy for you to get your money back in case a dispute arises. Using an escrow service or a bank line of credit are the best payment options to consider for your China sourcing strategy.

Your contract should also include a clear definition of the quality of product you desire. Besides ordering samples, you could also place orders with a supplier for a probation period to test their track record. Protecting yourself with insurance is a must for any business. You should also keep other options handy as alternatives in case something goes wrong with the current supplier.

Poor communication of needs

Cultural differences and the language barrier can result in a poor translation of your needs. You may assume that the Chinese supplier has understood your requirements, but China’s culture of “not losing face” can play a big role in their decision to not ask for clarifications. This could result in miscommunication and end up costing your business.

Make sure all specifications are given in writing and go over them with your supplier. You should also encourage them to ask when in doubt and to seek clarifications when required. Hiring a Mandarin Chinese speaking member on the team will go a long way in building better communication.

Now that you are armed with the knowledge of which mistakes to avoid when sourcing from China, you will proceed with care when planning your sourcing strategy with a supplier from China. You can follow these steps to help avoid getting into a poor deal. This way, your business will be spared from nightmare dealings and you can instead maximize all the benefits that come with sourcing from China.

The possibilities really are endless once you get it right. You’ll be able to grow your business on your terms and won’t have to face the challenges of a foreign supplier. A little effort and understanding will go a long way in helping you avoid these mistakes and the setbacks that go with them.

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.

For more on China sourcing visit our website or write to us at info@sourcingallies.com.