Sourcing from China can be an economically sound decision, but the costs can outweigh the benefits if one picks the wrong companies to work with. It is true that finding a reliable business partner in China can cut costs for your company, but most foreign business people lack knowledge or experience when it comes to Chinese language, culture, and business ethics, so it can be a very difficult and complicated task. Small businesses in particular can suffer big setbacks from working with suppliers who are unreliable and unethical.
It is very important to ensure that the supplier you’ve chosen is a legitimate company that can deliver the goods on time. Plus, it also helps to have business deals with companies that maintain ethical practices in terms of taxation and employee compensation. As the case of Apple has shown, the backlash over perceived employee injustice can reflect poorly on the company and its products.
Here are a few ways to make sure that the sourcing partner you’ve chosen in China is the best possible supplier.
1. The company is registered with the government. All legitimate companies in China are given a unique registration number. A company that cannot provide you with this number is a risk, so it’s best to work only with those who do have a proper registration number. To verify, you will have to get in touch with the Bureau of Industry and Commerce or the local administrative government. It is best to have someone who speaks Mandarin to handle the verification as most officials will be more comfortable speaking in the local tongue.
2. Meet with your potential new supplier face-to-face. Never place an order with a factory that you have not visited. Try to meet the owner of the company and get a feel for what kind of person he or she is.
3. Walk the factory floor and pay attention to the cleanliness and organization of the factory. Look for underage workers. If you see someone that looks younger than 16, ask your interpreter (not the factory sales person) to ask the person how old they are (in Chinese “Ni duo da le?”).
4. Ask the factory what countries they are shipping to and the names of some of their customers. The factory will usually tell you the countries and may or may not tell you the names of some of their customers. The factory telling you customer names is both good and bad. Good because you know whom they are selling to, but bad because you know they will tell someone else they are selling to you if you become their customer.
5. Walk through their finished good warehouse and look for logos and names of their customers. This is a good way to verify if they have told you customer names already or a way to find out whom they are really shipping to if they have told you they cannot reveal customer names. We think it is better when they tell you their customer names are confidential as that means they respect privacy. Then just by being attentive you can still learn who a few of their customers are.
6. Ask what their total sales are annually. Then later in the meeting ask them the average number of containers they ship per month. Then based on your knowledge and quotes you have received from suppliers, you can estimate the average value of a container based on the type of items you are interested in and verify if their annual sales and containers per month are accurate.
7. If payment terms or payment channels are inconsistent with typical practices in that region or industry, then ask more questions or find a new supplier.
As with most things, ask a lot of questions, look people in the eye when they answer, and follow your intuition.