Sourcing Products From China? Keep These Things In Mind When Trading With The Dragon

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Over the past 10 years, imports from China to our country have grown over 400%, and more and more Indian traders are rushing to cheap but often poorly made products from thousands of manufacturers in China. I first travelled to Beijing in 1989 and have travelled on an average of 3 times a year to various parts of the country.

I have also worked with very good suppliers and very poor suppliers. There have been very ethical manufacturers and sometimes fingers got burnt because of very shoddy goods received from unethical suppliers. My learning in sourcing from China has been:

1. Talk to at least 6 suppliers before you decide from whom to buy. This is often quite easy since Chinese manufacturers are clustered together in and around one area in most provinces. You will be surprised at the significant price differential across suppliers for the same product.

2. Do not get taken in by the certificates issued by major buyers that most manufacturers will show you. Every manufacturer claims to be a preferred supplier to the major retail chains in North America and Europe. If you have a direct contact with any of these buyers, do a quick reference check on the manufacturer you want to select as your supplier.

3. Negotiate long and hard. The Chinese love a good bargain and they love to play the game of brinkmanship even for small value. Keep walking away from the deal and the supplier will keep calling you back. When you reach a price that is unacceptable, he will not call you back. This is when you know that you have reached his lowest bargaining position. Use this price as the base to close the deal with the next manufacturer.

4. Chinese businessmen will pretend not to speak English although they know the language well. They will never speak to one another in any language other than Mandarin. I used to give myself an advantage as well and talked in Hindi or our local language with colleagues. When the Chinese manufacturers realised that we were playing their own game, they switched to English!

5. Never put all your cards on the table with a Chinese manufacturer. He will spring many surprises in the negotiation and, therefore, you must be well armed with your own set of surprises. Good poker players are great bargainers with a Chinese manufacturer.

6. Always remember that you are the buyer and he needs you more than you need him. The moment you show the slightest weakness with your Chinese supplier, you would have lost the advantage that a buyer should normally have with his supplier. And the Chinese manufacturer will not show any mercy or compassion to you.

7. The only hold a buyer has on a Chinese manufacturer is money for the current shipment. As long you owe him money, he will do your bidding. I have seldom come across a manufacturer who is willing to invest for the long term in a buyer-seller relationship.

8. You must never expect to receive any settlement for damaged or sub-standard goods. Claims are hardly ever settled. You will always be given a plausible excuse that you have no choice but to accept and if you push very hard, you will be told that they will give you a discount in the next shipment. Walk away from such suppliers with your losses because your claims are bound to double with the second shipment.

9. Agree on your pack designs and quality standards in writing. Ask for a signed test pack for approval and record this carefully in your paperwork. Once you open your letter of credit and when you give your go-ahead to manufacture, do not accept any deviation in quality. If you have given your approval to shipment without ensuring quality as per the sample, it is your problem.

10. Ensure that you conduct a pre-shipment quality examination before the goods leave the factory. You will never be able to recover a claim for faulty goods later.

11. Always ask your supplier to deliver your goods to your nominated clearing and forwarding agent at your designated port in China. Don’t ask for delivery to India. A Chinese manufacturer has no interest in the goods manufactured by him once he has shipped them out of his factory. Outside his factory, the goods are the buyer’s problem.

The moment the export shipment leaves his factory gate, he shall encash your letter of credit and move on to the next order. Whatever you do, be very careful. There is no recourse to law if you run into trouble.

Ashutosh Garg is the chairman of Guardian and the author of the bestselling books The Corner Office and The Buck Stops Here. Twitter: @gargashutosh
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