Working With Chinese Suppliers: Myths and Facts

This post is by Mark Houng, a product sourcing expert based in Taipei, Taiwan.

China has dominated the world of manufacturing for some time now. With marketplaces such as Alibaba going from strength to strength, sourcing and importing from China has become accessible to businesses of every size – right down to micro-businesses selling on Amazon and eBay from their garages.

Many businesses have products manufactured in China successfully, but they often make a lot of mistakes along the way. For every successful project, it seems like there are a lot more failures.

With four generations of my family in this business, I’ve been hearing those horror stories since I was a kid. Today, it seems like a lot of problems are down to how businesses work with their Chinese suppliers. They often don’t know who is responsible for what, they don’t understand their supplier’s position, and they don’t know the product well enough to communicate exactly what they want.

So here’s my top eleven (yes, eleven!) myths about working with Chinese suppliers. I’ll let you know the reality behind the myths, and give you my best tips on how to get it right. If you have any questions, just drop them in the comments box at the end.

Myth #1 – Suppliers will check if a product is legally compliant

You should always check trademark, patent, product safety and other compliances before you import. Smaller companies think that because they are working with a large supplier in China, the supplier will cover all the legal bases. The fact is, your suppliers do not need to check on intellectual property, patents or anything like that. As long as they can sell their products, there are many places in the world that they can sell to and never have to worry about compliance.

When you are the importer into your country, you become solely responsible for anything that goes wrong. Whether it’s government regulations or private sector intellectual property rights, they will go after you as the importer. They will not even consider going after the manufacturer in China. For example, if you are importing into the USA, you will be responsible for compliance with US intellectual property laws as well as US product regulations.

Just a couple of weeks ago, I had somebody message me and say they got hit: a company sent them a Cease and Desist letter. What can they do about that? Well, not much once the product is already in their warehouse. It looks like they’re going to have to destroy tens of thousands of dollars worth of inventory. But that could have been avoided if they were more careful, and did some research ahead of time.

So what should you do? Well, there’s no need to hire an expensive patent attorney right off the bat. Do some simple Google searches, look for your competitors in the market, and find out whether there’s a patent issue or not. That could make all the difference. I’m not giving any legal advice here, but you should always do some minimal research to ensure that there’s no patent registered for your product.

With regards to safety and other regulations, such as those for electronics, it can be very complicated because a lot of it comes with experience within the industry. When you are actually searching for a product, it’s always recommended that you work with somebody who has prior experience with your market. They would know what different compliances are needed for that product.

Every niche is a little bit different. Normally the restrictions are very tough if you are selling baby products or anything else for children. It really depends on the product as well. If you’re importing electronics for sale in the US, then you want to make sure you’ve got a UL certificate. If you’re going to Europe then you must have CE, or if you’re going to Mexico then you’ve got to have NOM. These all have different processes. I would suggest you go down to a local superstore and look for a similar product to check their labels and see what kind of compliances they have. That should give you some indication for the most part.

If you are ordering a product but not having it altered, ask the supplier for certificates. For example, if you’re in the US, ask them, “What has been your experience working with the US market? Are you currently selling to the US market?” That should give you a pretty good indication. An experienced supplier should be well informed about what type of certification is necessary, even though they won’t have the certification a lot of the time.

Myth #2 – The initial quote will be the price you pay

First of all, a lot of suppliers, when they give you a quotation will put a time limit on it. For example, “This quotation is only valid for October”. So you’ve got to consider the exchange rate as it fluctuates. They calculate their costs in their local currency then convert it to give you a quote in dollars, pounds or euros.

Another thing that happens a lot is that the costs of the raw materials fluctuate in much the same way as the commodities markets. If the supplier doesn’t lock in with a specific certain period of time, that price changes for them too. So every time they quote for the same product their costs might be different. So make sure that you verify prices all the time.

Logistics is another major cost. China is a big place, and depending on where you are getting it from your costs might be very different. One of the biggest mistakes smaller businesses or newbie buyers make is that they will ask for the pricing for one product, and the supplier will quote them for that product. People forget that in order for you to sell the product you’ve got to move the product to your own market. You’ve got to consider the end-to-end cost of the product, with delivery, taxes, packaging, and anything else that goes into it.

A lot of online sellers will buying from Alibaba. But one of the problems with Alibaba is that it’s an open forum, and anybody can become a supplier there. Often people will call themselves contractors and just set themselves up on Alibaba as suppliers, but they don’t actually manufacture any products or even have a company of any sort. They want to get business, so look at the list of suppliers and say, “You know what, I’m just going to sell something for a dollar less or a certain percentage less, than everyone else out there.”

Once you place an order with them, they will start looking for a manufacturer to make the product. Sometimes they succeed, sometimes they don’t. That’s when you run into all sorts of trouble. You might lose your deposit, or they might not be able to fulfill the order because they just simply can’t get anybody to make it for that price.

Myth #3 – Suppliers will be trustworthy if Alibaba has verified them

That’s unfortunately not true. Alibaba will tell you that there is no guarantee their suppliers are going to be reliable. You’ve got to do your own due diligence. A verification process is very, very necessary when you’re working with China, especially when you are thousands of miles away – it isn’t as if you found a supplier next door. Say you’re in California, and the supplier’s in Arizona, then you can drive for a few hours and visit them. It’s expensive to go back and forth to China, so you have to go through that verification process in the first place.

Before you make any significant amount of investment, you should have at least verified a supplier really exists. You can either do that yourself or hire a third party to do it. Make sure that you are not just sending your money off to somebody that hasn’t been checked out.

Make sure that someone who goes out there to verify them is someone you trust, and who also has a keen sense of the manufacturing process. Don’t just hire somebody online to take a picture then come back and give it to you. That happens a lot. In China it’s quite easy for someone to lease a space and take a few pictures. They spend a couple of thousand dollars to become an Alibaba Gold Member and post some really nice pictures. So you’ve got to have a very keen sense to walk into a factory and identify whether this is a real company that works and can guarantee your products.

Another thing is the ability of the supplier to rework the products. If they can’t rework the product to the standard you demand, and you are not satisfied with the quality that you have received, they will just sell it on to the domestic Chinese market. There are lot of places in China that would take a lower quality product, at a domestic price which is a lot higher than the supplier would have received selling it to you. They will just say, “You know what, let’s just forget about your deposit. I’m just going to sell this product somewhere else.” That’s why it’s important to assess their manufacturing capabilities.

Myth #4 – It’s always best to deal with a manufacturer directly

Sometimes this is true, but not always. It really depends on your business model. I work with Walmart as, despite their size, they still work with agents because we take care of a lot of headaches for them. But if you are a very, very small company and you want to work with a supplier who has a sizeable factory, you are likely to end up at the very bottom of their customer base. Companies like Walmart are sending them orders for 2-3 million units but you are buying only a couple of thousand. Who do you think they will give the highest priority to?

If however you’re working with a powerful agent it is possible that the supplier is also working with Walmart through that agent. The agent will therefore have some muscle with the supplier to get you going. So sometimes it’s not at all bad to work with an agent – it really depends on what different stage of the business you are in and what works better for you.

Agents can also help with shipping. Importing can be intimidating if you have never done it before. Normally when you’re working with somebody who has a lot of experience in dealing with manufacturing, they have a few contacts and they know a thing or two about logistics. They can often refer you to somebody that they have a long-standing relationship to make it smoother for you.

Myth #5 – You don’t need to know how the product is made

If you take a look at your entire business, often a good 75% of your effort is in getting your products perfect.

If you look at all the big companies out there, they will have an entire team of buyers, a team of engineers, and a team of people to make sure that process works. Often more people will be within the first three parts of the process than are involved in selling it. That’s a very big part of the effort and for good reason, because once you have the product knowledge you’ll be able to manage your product precisely and be able to communicate with your supplier very specifically. That becomes a big part of your success in the business.

As a kid I always loved buying stuff and then opening it up. I was in the third grade and the washing machine at home wasn’t working so I unplugged it. I basically stripped the whole thing, fixed the problem, and put it all back together again. Whatever product you are involved with, you’ve got to have that kind of passion for it. When I get a project, the first thing I do is really tear everything apart, study it and get to know every single component, and assess every material that’s being used in it. Weigh up everything so you get a good sense of what that product is like inside and out.

With more experience, the more you will learn about manufacturing that product. I have worked with manufacturers a lot for the last 16 years, and I’m in and out of factories constantly. During this time, I have experienced different processes, talked to different engineers, research and development departments, quality control engineers, ISO auditors and so on. This has helped me build a lot of product knowledge. But even if you don’t have that, you have to start somewhere. The more you have passion, the more you learn about it, and the faster you will overcome that hurdle.

Google it, YouTube it, do whatever you can do! Moulding is one important part of the manufacturing process. For example, if you are getting a metal extrusion you’ll have a certain type of look. If you are getting an injection-moulded plastic, you’ll have a different look. Do some searching, get to know the product, get to feel it, and that will help you build some product knowledge.

Myth #6 – It’s best to get your Chinese supplier to create the prototypes too

I personally suggest that people have prototypes made as close to them as possible. It might be more expensive than building it in China, but you save a lot of time in the development process. You will also be able to communicate with your supplier much better after you have gone through that prototyping process.

This is not the case 100% of the time however. If you already have a lot of experience in designing and building a product, and can provide a very clear, very exact spec sheet, drawings and so on, by all means go to China to get the prototype built.

But if you are brand new at doing this kind of thing, it’s much better to build a prototype near you, or at least buy one from your competitor. In fact, buy a couple. Send one to your supplier, and keep one for yourself so you can compare notes later.

Myth #7 – If the supplier says “yes” then they really understand you

I’ll give you an example here. I have a good friend who runs one of the biggest lighting manufacturers in China. I was visiting his dust-free factory one day, and everything in a dust-free facility has to be completely clean without a speck of dust. You have to clean yourself up as soon as you walk in: you walk through a tunnel, you change your clothing, leave your shoes and so on.

As we were walking along my friend saw that it wasn’t totally clean. They had just hired a new worker to clean the place, so he called him over and said, “Hey, didn’t we train you? You’ve got to make sure that this place is completely clean – it has to be absolutely spotless.” The worker came over and was really puzzled. He answered by saying, “Well, I just cleaned it. It’s absolutely clean. It’s cleaner than my bed.”

It can be hard for westerners to understand that China has been deprived of a lot of the standards that we take for granted. Factory workers especially are not at the top of the food chain. You’ve just got to think of them as a piece of the process. You have to train them, you have to give them the software, and make sure you tell them for example, what ‘clean’ means.

When you tell them, “I want good quality,” you must explain what ‘good quality’ means. A lot of times companies make the mistake of saying, “I want the best price, best quality, best service.” Well, everybody markets on that! But what does it actually mean? You’ve got to be objective and not subjective.

You might have sample pieces going back and forth a few times. Don’t go cheap on that. Don’t try to skip a few steps. Make sure it is perfect down to every little detail. Seeing is believing, so you can hire someone to check if you don’t want to spend a lot of money going back and forth. It could be very expensive sending a small sample by DHL, costing you as much as $80 each time, and you might have to go through that process a few times. But if you hire somebody to take care of it they can just send you one final sample.

Myth #8 – You have to pay the whole amount up front

This one is simple. Don’t ever pay the whole amount upfront. That’s a red flag if anyone asks you to pay all upfront.

Most suppliers don’t take PayPal because it’s just too expensive for them. For an initial sample it might make sense, but for the most part it can cost them around seven per cent with withdrawal and exchange fees. Most factories just don’t have margins to absorb that. It’s much safer if you pay them a small deposit. Different factories will ask for different deposits but just make sure that you don’t pay the whole amount upfront.

Myth #9 – Alibaba is the only source of suppliers that you need

Alibaba is getting better all the time, and they are certainly not going to go away. But it isn’t necessarily the best source to look at. Think of Alibaba as a directory service for suppliers. Before this marketplace emerged, anybody could run an ad in the Yellow Pages. In those days, you still had to drive down and visit them to make sure they were exactly who they claimed to be. Again, it comes back to verifying them. Unfortunately there are unprofessional people on Alibaba that can ruin your project, and potentially ruin your business.

Alibaba say they are the leading platform for small and midsized businesses. That means the larger and more consistent companies aren’t on Alibaba. While small businesses overseas are trying to figure things out, small businesses in China are also trying to learn this business. I’m not taking any credit away from Alibaba. I think it’s great that they are providing opportunity to small businesses on both sides of the world.

However, when you are a small business just getting started a lot of it is trial and error. If both you and the supplier are inexperienced, then it is a case of the blind leading the blind! You will make a lot of mistakes before you figure it out or just give up. One of the biggest problems is believing that every supplier on Alibaba really knows what they’re talking about.

Myth #10 – It’s best to let the the supplier handle shipping

A lot of the cost in this business is down to your logistics. If you are shipping using your supplier, often they will just do the easiest and quickest thing that works for them. So I always suggest that people don’t use the supplier’s shipping company unless there’s no other choice.

You should always have a certain level of control over your shipment. Use your own freight forwarder, rather than your supplier’s freight forwarder, because yours will be on your side. They will chase after the supplier and report back to you truthfully on the situation. But the supplier’s freight forwarder will wait for instructions from them, and they will only report back to the supplier. If you want to know what is happening, you’ll get second-hand information passed through the supplier.

Sometimes spaces are a bit harder to get with shipping companies or with airlines, in the middle of a peak season for instance. If you have a good freight forwarder working for you they can help you out with that. If you leave it to your supplier, they may have twenty containers that they need to ship out, but only enough space with their freight forwarder for ten. Who are they going to give that priority to? They’ll give it to their largest clients, rather than you. So it’s better to have that control yourself.

Logistics is a huge industry with some of the largest companies in the world, and the process is always being refined. It’s very interesting, but definitely not simple enough. Don’t overlook it in the overall scheme of your international business.

Myth #11 – It takes a long time to get a new product made

This really depends on the product. Let’s say you are making the iPhone 7. You started that two years ago, and now you are launching next year. It’s a large project with an extended lead time. But for most general merchandise, if you get the process right, and have improved on your processes to a certain point, you can get it down to between four and six weeks.

All the best manufacturers put a lot of effort into improving their processes. In fact, what determines whether you make money or not is how you improve on your process. I always keep trying to improve mine. Even if we’ve got a process down right now, we’ll tweak it and run a little test here, make it a little better there, so we can run even more efficiently.

A lot of process improvement comes down to documentation. Document what you have done, and then brainstorm to come up with a better process. Test the process before you use it. It doesn’t have to take a long time.

If you are working with an inexperienced supplier, you will try out processes that don’t work and have to move onto something else. You will need patience. When you are new to this, a lot of the time you will be unsure about what to do. You may be afraid of making a decision, and your supplier doesn’t want to make something that you then reject. The process just keeps dragging longer and longer.

So just keep on improving, keep making it better. Document your process and make it more efficient. Just don’t stop yourself from making that decision. That’s the worst mistake that businesses make.

This post was by Mark Houng, a product sourcing expert based in Taipei, Taiwan. Mark has spent the last 24 years helping small and large businesses successfully import products from China. You can contact him through LinkedIn.