Friday, 4 November 2016
Sourcing from China
Over the last 15 years imports from China have grown over 600% and more and more Indian traders are rushing to but cheap and often poorly made products from the thousands of manufacturers in China. Despite the current mood in India which is against Chinese made goods, the trade with China cannot be curtailed nor will it ever disappear. Caution needs to be exercised by Indian importers when importing goods from 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 worked with very good suppliers and very poor suppliers. I have seen very ethical manufacturers and I have burnt severely my hands with very shoddy goods received from unethical suppliers.
My learning in sourcing from China has been as follows.
1. Talk to at least six suppliers before you take a decision on who to source from. 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 American or European buyers, do a quick reference check on the manufacturer you want to select as your supplier.
3. Negotiate long and hard before you make a commitment. The Chinese love a good bargain and they love to play the game of brinkmanship even for a small value. Keep threatening to walk away from the deal and the supplier will keep calling you back. When you reach a price that is unacceptable, he will walk away and 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 supplier.
4. Chinese businessmen will pretend not to speak English though most of them 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 talk in Hindi or your local language with your colleagues. When the Chinese manufacturers realized that we were playing their own game, they switched to communicating in 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 will be great bargainers with a Chinese manufacturer / supplier.
6. Always remember that you are the buyer and that 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. Do not get taken in by his claims of “getting killed because of high input costs.” Always remember that the Chinese manufacturer will not show any mercy or compassion with you.
7. The only hold you as the buyer will have on a Chinese manufacturer is your money, your payment, for the current shipment. As long you owe him money, he will do your bidding. Once the deal is done, you will become a fresh order for him. I have seldom come across a Chinese supplier 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 that may have received in your shipment. 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. Once you open your letter of credit and before you give your go ahead to manufacture ask for a signed test pack of your order for approval and record this carefully in your documentation. Do not accept any deviation in the specifications or the quality of the sample which must be in accordance with your order. If you accept a deviation in the sample, forget any compliance of the specifications in the final shipment!
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 / defective 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, your supplier shall encash your letter of credit and move on to the next order. Whatever you choose to buy, be very careful.
There is little or no recourse to law in China if you run into trouble.
The author is the founder Chairman of Guardian Pharmacies and the author of the best-selling books, Reboot. Reinvent. Rewire: Managing Retirement in the 21st Century; The Corner Office; An Eye for an Eye and The Buck Stops Here - Learnings of a #Startup Entrepreneur.
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