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Thank you Fiducia!

davidbruns — Wed, 08 Dec 2010 09:40:43 +0000

A big thank you to the Directors of Fiducia (Mr. Jurgen Kracht, Mrs. Cynthia Kracht, and Mr Stefan Kracht) for having representatives of the China Sourcing Information Center over to Hong Kong for their annual Christmas party. Our Executive Director David Bruns and Marketing Manager Laurent La were grateful for the hospitality shown to them by Fiducia’s team. The party helped reaffirm CSIC’s decision to partner with Fiducia for our non-profit organization. The Executive Director and Marketing Manager had the opportunity to meet some of Fiducia’s satisfied customers and share the core philosophies of the China Sourcing Information Center. We are also pleased to say that the CSIC was well received by those members of Fiducia’s extended family.

Fiducia is one of the China Sourcing Information Center’s Endorsed Service Providers for the services they provide in the fields of outsourced accounting and business formation. David and Laurent were thankful for the opportunity to represent the CSIC in Hong Kong for the party. A special thanks to Fiducia’s Thaddaeus Mueller and Robin Ngai for the invitation to attend!

To see all of the services of our proud sponsor Fiducia, please visit their website at www.fiducia-china.com

Managing the Dragon- another great read

davidbruns — Tue, 07 Dec 2010 06:55:16 +0000

Two great recent posts from Jack Perkowski of Managing the Dragon. If you don’t know about China’s growing influence in Africa you should. China is investing billions of dollars in African nations for infrastructure, no interest loans, etc in exchange of course for rights to drilling and natural resource extraction.

Mr. Perkowski has a nice little case study that he conducted primarily looking into Congo and Tanzania. It will be good for those trying to understand China to know all of China’s work around the world (even if it is arguably simply for natural resources and oil). To read this piece from Mr. Perkowski click here. As it appears that this first post is the beginning of a series I’d encourage those to get an early start and get caught up. I’m looking forward to the rest of the series.

Another good piece was on Chinese inflation which can be viewed here. He presents an interesting case study based on the prices of produce increases recently. It seemed really more a matter of time, when those in China would see a sharp rise in the inflation rate. Anybody who has spent any amount of time here in China (for us at CSIC- Shenzhen specifically) one simply has to look out their window to see a skyline of green mesh surrounding new apartments buildings being constructed. Just look at Diwang and you’ll see the tallest building in Shenzhen continuously rising higher and higher over Diwang. It should be noted though that the Chinese government is already taking steps to try and slow the rise of inflation, but it will certainly be interesting to see things in the next few months.

I’m glad I rediscovered another great about China

Thank you for stopping by the China Sourcing Information Center!

davidbruns — Thu, 02 Dec 2010 04:22:27 +0000

Hi,

My name is David Bruns, and I am the Executive Director of the non-profit organization the China Sourcing Information Center (CSIC). I’d like to welcome you and thank you for stopping by our website today!

For those of you who are just finding us for the first time- Welcome! We here at the CSIC created this non-profit organization to help buyers like you do business in China. All of us here in China started off just like you struggling to get productions going (who still doesn’t deal with this problem?!?) all the while slowly but steadily gaining the experience needed to work in China and work here successfully. But unlike in years prior, we here at CSIC are actively seeking to help all those in the sourcing community by launching our website and our publication- the “China Sourcer”

The “China Sourcer” is the CSIC’s monthly e-magazine written by buyers for buyers like you. We actively seek to provide the best practices of those who have years of experience doing business in China. By putting these best practices here on our site and in our magazine, we hope to help those just starting their business in China have a more successful chance in China than had they done things on their own.

Our magazine the “China Sourcer” was first launched in September with a lot of promise and positive feedback. I’m proud to say that as we’re just about to launch our 4th issue, our little magazine, each successive issue continues to improve upon the last one. We certainly hope this continues, and I’m confident it will with the buyers support network we are creating for our Non-Profit here in Shenzhen, China.

As our company matures we’ve realized that not everyone looking for sourcing information has the time available to read our magazine, but hopefully they can find a few minutes a day to read our blog. So be on the lookout for a much more active CSIC blog.

As such I can also recommend other great blogs which you’ll find on our blog roll or you can follow my link. First off I’d like to introduce you to the blog of David Dayton of Silk Road International. David volunteers as the Editor at Large of the “China Sourcer” and as such has worked with me to continuously make each issue of our magazine better and better. Voted one of the top 10 business blogs, David manages the blog of Silk Road International which you can read here. If you’re sourcing in China, and you want a great head start on general business practices, check out this blog, as it’s a top 10 blog for a reason!

Three other blogs that are highly worth reading on a continuous basis: Dan Harris writes for the highly informative China Law Blog. In fact a great piece was posted by him recently on forming Chinese companies. A great read which can be found here.

Whit Kelly of PassageMaker Sourcing Solutions, has a great blog on general business discussions which can be read here.

Finally one of the big items that the CSIC will always stress for new buyers is quality. QUALITY QUALITY QUALITY. Anything you do in China, needs to be based on quality. It’s important. For business related matters with quality check out our endorsed service provider Asia Quality Focus.

If you just want to read a great blog on Quality issues, check out Renaud Anjoran’s quality control blog which can be viewed here.

These blogs along with ours of course will get those who are curious about dipping their toes into China headed on the right track. As always though, do think about your plans and know there are resources out there to help you be successful. Again thanks for stopping by our website and blog. Click here to view our December issue of the “China Sourcer”.

Thoughts on buyers- Mumbai Sep. 8-10

davidbruns — Wed, 15 Sep 2010 10:11:22 +0000

Recently the Chairman of the Board of Advisers for CSIC, Mike Bellamy, was in Mumbai hosting the Global Sources conference on China Sourcing. Mike was asked to give his opinion on the situation of the Indian buyers he met while speaking at the show and while manning the CSIC booth.

I was asked that I share my thoughts on the attendees of the Global Sources trade show in Mumbai, India from September 8^th through the 10th. In short, the average small scale Indian buyers are just now cutting their teeth on China sourcing and falling into all sorts of pitfalls. At sourcing conferences in other place like Dubai, HK, USA, I occasionally hear horror stories from the buyers about how they got ripped off or quality fell short. But at the Mumbai show it was rare to hear from somebody that DIDN’T have a problem with their China orders.

Many Indian buyers had problems with their money disappearing because they didn’t follow simple rules that other nation’s buyers always follow. For example, I learned that some of the buyers who had problems were not even using a formal Purchase Order (PO), instead they simply sent an email description of what they wanted to the supplier. That is very dangerous. Another common mistake was failing to audit the factory to make sure it was legit BEFORE placing a PO. The most common mistake was that many failed to do an inspection on products before the goods ship out of China. I was saddened to see that the vast majority of Indian buyers don’t do those essential steps. I think the reasons are two-fold:

A. They are new and don’t know such steps are essential

B. Orders are small and they don’t have the funds to do inspections, audits and due diligence.

I can partially accept “B” as a reason, but in my opinion, it is better not to source than to source dangerously. Plus keep in mind that inspections and audits costs 100’s not 1000’s of USD (see CSIC endorsed service providers for options). After attending my conference, I hope no audience members will chalk up sourcing failures to reason “A”- lack of knowledge as I tried my best to educate about common pitfalls as well as best practices. Luckily the China Sourcing Information Center and Global Sources’ conference helped get the audience pointed in the right direction. The feedback from audience members has been very positive. I think this particular market more than anywhere else I have visited needs all of the education that can be made available to help them succeed with China Sourcing, and I am honored to have played a small part in the process.

Factory Audits

davidbruns — Mon, 13 Sep 2010 11:01:09 +0000

Notes on conducting Factory Audit during the supplier identification phase by Mike Bellamy (Operations Director at www.PSSchina.com and CSIC advisory board member)

It is essential to do a factory audit to review the QC system of your top potential suppliers in advance of placing a Purchase Order (PO). Depending on your budget constraints, you may choose to audit all the top candidates or perhaps just one or two. But it is essential to have some kind of on-site audit done. As the costs are generally hundreds of USD per audit when hiring a 3^rd party auditor, rather than thousands, I tend to audit the top four or five suppliers to give myself the best odds of finding that perfect match.

To give the reader a feel for what a typical factory audit consists of, I would like to provide two examples. One is the resulting report of a “simple factory audit” conducted by the professionals at Asia Quality Focus (www.AsiaQualityFocus.com). The second is a template for a “comprehensive audit” used by a US buyer of high-end electronics. It is full of very technical QC concepts and in a bi-lingual. Keep it handy if you find yourself in a factory that doesn’t have polished English skills, you just may be able to use your fingers to point out the key QC terms if you can’t communicate them well in spoken or written English alone.

In advance of reviewing the two documents, understand that the intensity of your audit depends a lot on the industry you are in. For example, electronics, medical and automotive standards are much more rigorous than plastic picture frames. And it wouldn’t be effective to hold a plastic picture frame factory to the electronics sample below. The simple factory audit will give useful insight into any factory and catch any major red flags, while an industry specific extensive audit would be used to select the best supplier from a group of suppliers that have all passed the simple audit.

Please keep in mind that the templates below are used by engineers, trained in auditing. But it is my hope that simply reading over how the experts do it, readers can pick up some themes that they could apply to their own projects. For reference, know that the going rate at the time of writing for China Quality Focus to conduct the simple factory audit below is just 188 euro per man day and the vast majority of audits are conducted in 1 or 2 days, depending on the size of the factory in question. So unless you are familiar with QC standards and how Chinese factories are set up, it is probably best to leave quality systems auditing to the experts. But, if you are on a tight budget and don’t have the funds to hire the experts, here are some tips to keep auditing costs down:

i. Audit only the top 1 or 2 factories.

ii. Join the auditor for the initial factory audit, study their methods, learn the template, and do the next factory audit yourself. I don’t advise this option, but it is an option when on a tight budget. Most auditors will be happy to have you tag along, because if they are professional and do a great job, the buyer will see the clear value and probably opt for the auditors to do the rest of the audits.

iii. Make your own template based on the samples below and conduct your own audit as a last resort if you are flat broke and can’t hire a professional for a few hundred USD。（I’ve been in sourcing for 10+ years and I still leave this function to the auditing professionals, so don’t feel embarrassed about getting help! It may be turn out to be the best money you spend in China.）

Please click these links to view the Sample Audit (provided by www.AsiaQualityFocus.com) and the Sample Supplier Evaluation Form.

Making use of 3PL Service Providers

David Dayton — Tue, 08 Jun 2010 01:05:08 +0000

Sometimes there is no one better than you yourself to make sure that you get exactly what you want. Other times, you should choose to or have to use someone else to really get the best. When you’re working with China from a distance, Third Party QC (3QC), price negotiations, testing and Third Party Logistic providers (3PL) are just a few of the options that are better than what you could do yourself.

International logistics is one of the processes that you both must deal with and absolutely do not want to have to deal with yourself. Depending on where your products are coming from and going to, there maybe more than 15 different government offices and private companies that you’d have to deal with—in multiple languages. It’s just not worth it to do it yourself. Leave it to the pros.

Enter the 3PL or freight forwarder.

What is a freight forwarder? The best way I’ve heard it explained is “a travel agent for cargo.”
Like an agent that plans your entire vacation from door to door, freight forwarders can take care of every detail of getting your goods from the factory to your warehouse.

More than any other single reason, you want to avail yourself of their services because they will coordinate all the logistics for you for less time and money than you could ever possible do yourself.

Just make sure that in choosing one you find someone that fits with you specific needs.

The first consideration in choosing a 3PL is determining exactly what services you’ll need. In my case, because we combined orders and products from multiple factories and locations across China, I typically need more help getting product out of China than I do into the US or Europe. To help me here I’ve chosen a freight forwarder that is also a customs broker with a large presence here in China. You may be buying from a single factory that can deliver your goods to the port in China so you’ll need more help clearing customs in the US.

Another significant consideration is where is the service rep that you’ll be working with? You should find a 3PL with offices in China (your export port city) and your home town or at least your time zone and also the port where your good will be entering through. Unless you live in Timbuktu, this isn’t as daunting a requirement as it may sound. Most, if not all, of the international 3PL’s will have office in major ports in China and western countries. The trick is finding someone close to you that you can talk with during your business hours.

Once you find someone you like you’ll want to negotiate rates based on real quantities for next 3-6 months. Rates for shipping change with demand and unless you have a rather large consistent qtty (10 plus containers per month) then you’ll not likely not be getting a quote for longer than that.

As I mentioned above, you need to shop around, compare bids and make the 3PL compete for your business. Even if you’re small, you can get the best possible rate by shopping your freight around and seeing what options you have. Choice and information are never bad things. So don’t leave this to the last minute. Before you start production starting looking for and talking with potential 3PL’s.

Also, busy seasons for shipping don’t necessarily coordinate with any other typical seasons of the year. High season for shipping from China, for example is typically the month before Chinese New Year and the Third Quarter of each year; July through September when all the retail stores are shipping for Back to School, Halloween and Christmas. You need to plan accordingly as there is a finite number of containers and boats available.

Once you do find someone you like and get the rate that you feel comfortable with you should stick with that provider as their service will tend to get better as they become accustom to what your specific needs are. So, until you have some issues, find a 3PL and stick with them.

Sticking with someone that knows your business really is important—we’ve been using the same 3PL for more than 7 years now. They know what we want. They call us with updates. They give us special attention when we ask for help and anticipate issues before they happen. Though we have had a couple of problems over the years, in general they have become an invaluable part of our operation. They can’t always do everything we need, but they know how to find other to help—and that’s just as good.

The first time most people ship goods from China they often have the –slap-to-the-forehead moment when they see the bill. What most 3PL’s will give you is exactly what you ask for—a price for shipping freight. But what’s not included in the bid can be anywhere from 2 to 200% of the cost of your goods. The fees associated with shipping and the taxes and duties on your product are almost never included in a bid—why? Because unless you know that HTS code (Harmonized Tariff Schedule) your products fits into and exactly how larger your shipment (in CBM—Cubic Meters) is. If you can’t tell your 3PL they likely won’t know this either and thus can’t bid on it.

Also, remember that taxes and duties may be required at BOTH export and import countries—and that they’ll be different for each and every product. If you are buying product EXW (Ex-Works, meaning you take possession at the factory) then you’ll be responsible for paying the taxes dues at both ports.

Your freight forwarder may or may not also be your shipping line, customs broker, customs bond issuer and freight insurance provider. Regardless if it is one company or four, you need all of these services. A quality freight forwarder can set you up and take care of all your needs whether you are a first timer or a seasoned professional.

Buying from a Supplier Online

David Dayton — Fri, 16 Apr 2010 05:07:24 +0000

At each of the Global Sources New Buyers’ Training Programs and in my inbox probably once each week, I get a question something like this one I received last week:

“Hi, David, I found a few suppliers online that can do what I want but they all want me to wire cash directly. I’m sure that this isn’t the way to do this. What other options do I have? Also, what happens if I send them money and I don’t get my [product] or it shows up broken? How would you do it?”

To me, wiring cash (which really is the way that it’s done) is not the part that you should be most worried about. What you really need to do is figure out how to tie the quality of the goods to the payments that you will be wiring. And also how to confirm that quality before you take delivery of any product.

If I was working by myself from over seas this is what I would do.

LEGAL NOTE: If you are going to be doing any type of OEM/ODM work and not just buying stock items then you need to take all the legal precautions you can in BOTH your home country and in China. If you do not protect your name/brand (both in English and Chinese) and your product designs here, you probably will not have the protection in China that you’ll want/need later on.

First, I’d get prices from 3-4 factories on as many pieces as each one will bid out for you. I’d tell them up-front that you’re talking with other factories and comparing prices but that you’re looking for a single long-term supplier. I’d be very honest about the qtty’s and the quality expectations. If you exaggerate the qtty’s they will cut your quality to compensate for the lower bulk prices they’ve quoted you.

Second, I’d be very up front about price questions and get as many details as possible. You have to be sure to not only get a list of what is included in the price but also what is NOT included in the prices. Negotiate the prices like there is no tomorrow—the prices you’ve been given are purposefully high. They expect you to negotiate. Don’t ever except the first price you’re given. Don’t offer or even think about paying a supplier their higher price in return for “better quality” unless you specify exactly what better quality includes.

SIDE NOTE: Price terms and shipping terms are not the same. FOB and COD on the bid and Pro-forma Invoice are not talking about the same items. Finance terms are simply when and how you pay for your goods. Shipping terms designate a specific logistical service that is (or is not included) in your final payment prices. Having FOB or CIF shipping terms listed on the contract does not tell you when you must pay. Similarly, COD does not tell you what portion of the international shipping costs you are personally responsible for.

Third, before I ordered, I’d pay $50 (per supplier) and have a 3^rd party verify the company info. Look up import records (public in the US), talk to any of the suppliers’ clients if you can and talk with others in the industry and see if your potential supplier has any type of reputation. Glo-bis, Verify. If you’re doing a) custom work with lots of tooling, b) a single order that is a significant dollar amount, or c) will be doing regular orders that are hundreds of thousands of dollars over the course of months/a year, then I would suggest that you pay to have a standard capacity audit done. This will cost you somewhere in the neighborhood of $650 plus expenses.

Fourth, you need to confirm with your home county what both the import requirements and product requirements are. If you need to meet specific product safety or health standards then you MUST PAY FOR A THIRD PARTY TO TEST BOTH THE MATIERALS AND THE PRODUCT BEFORE YOU SHIP IT. This isn’t an optional step. This can’t be left to the factory. If you are the importer of record then it’s YOUR responsibility to confirm that the materials and the product meet your countries standards. The factory really has very little incentive to do this for you if you’re already committed to an order.

The import requirements are different from the product requirements. To know what is allowed and how much it will cost you’ll need to contact a freight forwarder with offices in both your home country and China so they give you a full list of all the duties and requirements. There are often not just import requirements into your home country but export requirements that must be met to get goods out of China too. Make sure you know BOTH before you order.

SIDE NOTE: Testing. You need to have an independent third party test your raw materials, your molds, and certainly both inline and finished production. I’ve used Intertec, BV and Pro QC. They all have labs in China (and other countries). They will send someone out to pick up the samples, if you request—and I strongly suggest that you do this. If you are not here yourself to pull the samples and you don’t have a 3^rd party do it for you, what incentive does the factory have to send samples that may not pass the test? None. Do it right or your just wasting time and money.

Fifth, negotiate the prices again, and order initial samples from some (2-3) of your potential suppliers to check the quality and the security and service of each one. Getting your order and finding out that 33% is bad (everything from one supplier) is much better than getting the order and finding out that you picked the wrong guy and 100% is bad.

Sixth, I’d wire (T/T) the money to them directly if the cost was less then $1000. If you split up the sample order into 3-4 parts, you’re less likely to lose the entire amount and you’ll learn how responsive/responsible each of them are too. For small orders there is really no other way to do it either. No one in China has heard about Paypal or escrow accounts so don’t waste your time. And no one wants to do LC’s for less than hundreds of thousands of dollars, and even then it’s tough to get one. If you’ve done your DD and paid for research then you should be relatively safe. But, of course, at some point you need to trust people. You should verify as much as possible before you trust, but you will still have to trust at some point—which brings me to the next point.

Seventh, I’d tell each of the suppliers that product cannot leave the factory until it’s been QC’d by a third party (orders for sure, samples too, if they are expensive). And then copy your 3PQC on the TT and the invoice and the contract (that is, of course, signed/stamped by you and the factory). This will help to make sure that the factory knows that someone who is already in China will be coming out to check the product and can/will provide a paper trail of all important documents and correspondence.

Eighth, have your 3PQC do at least two/three visits. They should check production (inline) and final product and loading of the container—this is the bare minimum. You should do much more QC and testing especially if you are in a sensitive industry that requires specific health and/or safety standards. The quality rule for product from China is very simple—the more time you spend monitoring the quality of production, the better the finished product will be. Spending $2,000 for QC and testing for a order even as small as $10,000 is better than spending $10,000 and 6 months on product that shows up below standard or wrong or broken.

SIDE NOTE: Returns. Getting bad product back into China is expensive, time consuming and almost impossible to do. China has strict laws about sub-standard product coming back in to China (why would they want it?!) and getting your supplier to pay for it will never happen. If you aren’t planning on coming to China and you aren’t planning on have 3PQ check on it, you’re really telling your supplier that shipping garbage is OK—and that’s most likely what you’ll get. Factories know that if they can get it on the boat, they’ll never see it again. And if you’re paying before it ships then you have no recourse—what incentive do they have to give you the best, most expensive quality? None.

Ninth, I would NOT continue to buy from all 4 suppliers after the initial sample, try to consolidate orders with one or two. But keep in touch with the other two and place small partial orders with them as the opportunity arises, just to keep them aware of you and your business and to keep you aware of their new products/options. It never hurts to have a back up ready to go just in case.

Tenth, I’d then plan a trip out here sometime in the next year or so—especially if you are going to order regularly. Visit each of the 4 factories. Time the visits so you can place an order or two while you’re here and see some of the production of your product. Maybe time it so you can attend some tradeshow(s) while you’re here too.

Finally, I’d contact a number of freight forwarders that have their own offices in your home state and the region your suppliers are in (for example: Guangzhou or Shenzhen for southern China; Hong Kong is sometimes not “local” enough) and get them to quote you complete shipping costs for both sea and air with all duties and fees included for each order. People are often surprised to realize that there are specific requirements and oftentimes duties and licenses necessary to get product out of China as well as to get product into another country. Sometimes these expenses can double the final cost of your goods. Negotiate rates with them based on your projected volume over the next 3-6 months. Like the factories, choose one forwarder all your orders (unless you also have to have UPS overnight something to you) and stick with them. As you push more and more volume through them, they will get better and better at anticipating your needs and more and more willing to help you with details and requirements. Schenker, Phoenix, Expeditors, Marsk are all forwarders that we’ve used.

About the Author

David Dayton is the owner and manager of SRI. David has nearly twenty years experience working in and with Asia and he leads SRI from our Shenzhen, China office. Besides Shenzhen, David has lived, worked and/or studied in Thailand, Taiwan, and China.