CSIC

Tips for Selecting a 3rd Party Service Provider

China Sourcing Information Center — Fri, 18 May 2012 01:54:01 +0000

How do you get very good Agents in China?

ANSWER:

There are many types of agents ranging from buying agents, to inspection agents to shipping agents. But regardless of what type you are looking for, here are some tips taken from the CSIC website.

Tips for Selecting a 3rd Party Service Provider

Are they a legitimate company with proper business licensing?
Do they have a clear track record of performance? If they can’t give you some client references, run away. That is a very big red flag.
Are they focused on a certain set of services or do they try to everything for everybody? Yes, even the 3^rd party service providers have been known to outsource to others just like some factories outsource production without telling the buyer.
Is their pricing structure and service agreement well defined and transparent?
It is a major pitfall to do business with a 3^rd Party service provider without a clear contract in place that outlines the service, costs, time frame and other desired attributes of the partnership.

Here are a few more blog posts that may be of interest to you:

Avoiding Middlemen – a look behind the bamboo curtain

these middlemen think you are stupid!

The difference between the middleman and the actual factory

More buyers falling into the same China sourcing pitfall

For your reference, the CSIC keeps a list of agents that are in good standing with the CSIC. You can find them at http://chinasourcinginfo.org/endorsed-service-providers/

Thanks again for your question. Let us know how things work out for you.

Wishing you successful China sourcing!

Question answered by Mike Bellamy, host of “Ask the Experts” at the China Sourcing Information Center.

Mike Bellamy is an Advisory Board Member & Featured Blogger at the not-for-profit China Sourcing Information Center (www.ChinaSourcingInfo.org). He is also the author of, “The Essential Reference Guide to China Sourcing” (chinasourcinginfo.org/book) and founder of PassageMaker Sourcing Solutions (www.PSSchina.com )

Subcontracting by suppliers: Buyer beware!

China Sourcing Information Center — Fri, 18 May 2012 00:59:36 +0000

Quality Control, with David B. Fisher

When looking for suppliers in Asia, a high percentage of the vendors that you may look at are likely middlemen, with no actual facility, connecting the buyer to the factory. Of course, it is best to avoid this situation and many clients will perform audits before ordering to ensure that they are indeed working with the factory directly. Once you ensure this much, you are in the clear, right?

Unfortunately not- a large majority of factories actually subcontract certain things to other manufacturers who can make the pieces more cheaply. It makes sense from the factory’s side. For example, say a factory specializes in knit undergarments, and then all of a sudden needs to produce woven pants. The factory probably does not have the know how to do this, but wants this client. It is likely the factory can find a sub-supplier who can provide whatever they need at even lower prices than they could. While, if you are lucky, some of this savings could hit you, the client, there should be serious concerns. Additionally, a factory may simply decide to outsource some of production on larger orders. In some cases, a factory cannot actually manage an entire order and, rather than losing face (and possibly a client) by telling you this, they will find another factory who can manage part of the process.

But what exactly is the problem with your factory using a subsupplier?

The factory doesn’t do QC on the subcontracted parts
While your factory may comply to certain rigorous standards you have, their sub-suppliers may not!
This all means that even if your factory does their job to a 100%, which by the way is very unlikely, there could still be problems with your products!

Make sure that if you are vehemently against your factory subcontracting, it is written into the contract; otherwise you can bet that your factory will cut any corners possible in order to gain a bit of profit. Making sure to check your QC at least pre-shipment is also an important step in ensuring conformity from your factory!

Made-in-China: Quality and cultural divergences

Mike Bellamy, with CSIC — Thu, 17 May 2012 07:28:09 +0000

“Made in China”, is commonly believed to have a negative connotation. For most people entering into business relationships with Chinese companiesthere are many questions that lead to anxiety: How can I ensure the quality of my products? Can I trust my suppliers? Can I trust the result of the inspections? It can be stated that in manufacturing Quality refers to the ability of the final productto meet the initial specifications. You are able to measure Quality through an inspection. Inspections are a repeatable and accurate measurement of the level of conformity. Indeed, the communication, and therefore the cultural divergence will have a huge impact on its result. Ignoring this fact has always lead to extra difficulty and frustration for Western managers or customers when having to face the Quality issue in China. The main risk is in what is called in literature the “Directive Lure”. Here is an example:

Background:

A Western manager makes his daily tour in his China factory with Jack- the local Chinese staff member responsible for the workshop. While passing by the office aside the production line, Jack noticed a leakage in the ceiling with some water dropping on the computer desk.

Manager:Jack, you need to fix this immediately. It is a huge risk for the computer and the safety of the people!

Jack: OK. No problem.

5 minutes later the manager pass by the same place and notices that there is an umbrella above the computer! The leakage is still there, the water drop, the computer is protected!

Manager – Jack, what is this ?

Jack – This is to protect the computer, like this there is no more risk.

Manager – Are you kidding me?… it’s not serious, you should close the water supply at least to stop the leakage.

Jack – Ok .I see. Sorry.

5 minutes later, the manager pass by the production line and it has stopped. Checking the situation, it appears that they don’t have any more water. The manager calls Jack.

Manager – what is going on ?

Jack – we shut down the water as you said, but the line cannot work any more…

Manager – then open the water, and find a way to stop the leakage, I don’t know, place some tape on the pipe, ….

Jack – OK. we will do this.

I can continue this story indefinitely, the relation is entering in a endless circle : the Directive Management Lure.

I’ll let you guess where is the Chinese employee and where is the western manager in this circle.

This circle could occur in any situation and when it happens in Quality inspection, it creates huge problem. Your inspector will only do as it has been told or as the directives ask him to.

- Think about the specifications : Are they always complete? Are they always accurate ? In all my experience I have never met perfect specifications, there were always some errors or missing information.

When entering this circle, your inspector will only focus on what is written, what is asked and therefore ignore all the rest. If it is not in the drawing, on the specs, then it is simply not taken in account. The main reaction I’ve seen from western manager or customer : “where is their common sense?”

- Think about all the inspections that have to be done, can we anticipate any situation that will occur in a factory? Absolutely not, that’s why there is inspection. If your team is unable of showing initiative, then what’s the point in sending them over there! The main reaction : “OK you tell me we cannot ship, but then what do we do? What is the solution you propose?”

The result, most of the time, is that trust is lost, toward the supplier, the team, and the end product.

The first step is an inappropriate attitude from Chinese culture approach of the relation Vs the Western expectation,.

The second step is an inappropriate answer and attitude from the Western culture approach Vs the Chinese mindset.

The majority of Chinese have no exposure to The West until they join a western company, there is no way for them to understand the culturaldifferences that they will have to face. Even if the cinema is spreading more and more and carrying with it some “western phantasm” (the super boss omniscient and omnipotent), the reality is far different.

Any training on working method or tools needs to integrate a clear link between the western cultural basis and expectation that makes this method/tools efficient from a western perspective. This approach is the cost necessary in order to go beyond the step 1 and 2 : transmitting sense and not only techniques, transmitting the full picture demonstrating why this method is suitable for Westerner, what makes it different from Chinese traditional way of acting.

Any training has to be fine tuned on the level of detail and formalization transmitted: too many details and you end up with a pure mechanical team that will lose its “common sense”. Too few and you will end up with as many solutions as you have team members and therefore you can say goodbye to repeatability and accuracy.

Remember this moment in the movie “7 Years in Tibet” : the Tibetans get a pair ofice skates. They call them “white man’s knife” and use them to cut meat with their feet, as they assume the white men were doing. Their comment was to say: “you white men are so strange and stupid, where is your common sense to cut meat with the feet!” Then the white man shows them how to use them on the ice for skating, and then their reaction is to say :“what it is useful for?” From their point of view no sense in their life style for such unproductive activity.

In China like everywhere else, you will find both reliable and unreliable people, there are honest and dishonest people, and the huge majority are honest and reliable that know what is expected of them. Clear and well communicated expectations are necessary to avoid ending up with frustration, deception and anger. There is no higher risk in China than anywhere else,we simply need a systematic approach to adjust the way we communicate.

About the Author

Hubert Delelis is Material Science Engineer with 20 years experience at a MNC Decathlon – OXYLANE Group, 12 years of which as a General Manager of business units in Shanghai, Taiwan and Shenzhen. Mr. Delelis is also the founder of AKA Outspring, a company that focuses on operational and management trainings for Chinese middle managers.

Mr. Delelis has a broad knowledge on managing technical (production, quality, supply chain) and service departments (IT, finance, HR), using international management methods and standards such as delegation, empowerment, lean, participative management and others. He has recruited and trained hundreds of Chinese team members and successfully promoted local middle managers.

In his previous experience, he created a multinational team of experts who delivered technical trainings and expertise all over the world.

Led by his passion on human development and human management, he is now sharing and transmitting his experience through AKA Outspring™.

Mr. Delelis has successfully developed and adapted training and coaching methods to boost local teams’ efficiency and autonomy.

His training are based on 2 principles :

ONE: Using Chinese traditional Cultural levers to render the training more efficient

Game oriented : use the attraction of game for Chinese,
Social link : because of interactivity, create a specific “link” with the trainee to generate trust and involvement,
Demonstrated efficiency : show that it works to enhance acceptation of the new method teach.

TWO: “Hands on” training contents to boost the Return on Investment

All trainings are based on placing the trainee in a real situation where he will have to perform the method,
All training are adjusted to fit the specific need of the customer (we create the situation required),
All training integrate the Western cultural approach to give Chinese team members the key of a better understanding of customer and/or manager expectations.

Held in his unique and exclusive Operational Training Center or in house, AKA Outspring™ provides more than 25 trainings topics.

Know more by visiting their website (www.akaoutspring.com) or contacting them training@akaoutspring.com.

Because Human Resource is the core asset of a company, team autonomy is the ultimate means for efficiency and sustainability.

The Facts about Production Costs in China

China Sourcing Information Center — Wed, 16 May 2012 12:30:36 +0000

Summary

Written by James Cissel, Staff Writer/ Researcher at the Shenzhen-based China Sourcing Information Center (CSIC), this whitepaper is designed to address the topic of what international buyers need to know about the costs of labor in China.

Target Audience

Buyers sourcing or interested in sourcing from China. Foreign manufacturers in China.

About the Publisher

Founded in 2010, the ...

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Learning materials to help get ready for China sourcing

China Sourcing Information Center — Wed, 16 May 2012 01:27:58 +0000

I attended the Global Source’s show and conference in Johannesburg last year, learned a lot in Mike’s session….are there any materials for sale that I can buy and study about China sourcing? I’m going to China middle February for the first time to meet and buy from suppliers. Just want to be well prepared for it. So if you have any materials, links or advice, would be much appreciated

ANSWER:

Hi Andre,

Thanks for staying in touch. Glad you enjoyed the show and my seminar.

If you are looking for study materials, check out my book at this link: http://chinasourcinginfo.org/book/.

Also, visit CSIC and subscribe to the free China Sourcer magazine. http://www.smartchinasourcing.com/ blog and article database is also free and open to the public. If you want to get up to speed quickly on a specific industry, you may want to buy one of the sourcing reports found here:

http://www.chinasourcingreports.com/all_reports?dmsource=HP102CDJ

That should get you pointed in the right direction.

Question answered by Mike Bellamy, host of “Ask the Experts” at the China Sourcing Information Center.

trade friction: now even the kitchen sink affected

Mike Bellamy, with CSIC — Tue, 15 May 2012 09:41:25 +0000

Summary: As part of CSIC’s efforts to keep buyers informed of WTO (world trade organization) rulings which could affect your sourcing, this post explains about the status of stainless steel sink imports and why China sourcing professions need to care about those products and WTO rulings. Even if you are not in the sink industry, the trade friction could spill over into your industry. Here is the latest on the situation.

First some good news

As China is now a full member of the World Trade Organization (WTO) trade disputes are mediated
by the WTO. This is a large step towards “rule of law” at a global level and helps to reduce not only trade barriers but also prevents trade friction turning into trade wars.

Now the reality

When one nation brings a case to the WTO court, it is not uncommon for the defending party to
raise countersuits on other products. Sometimes the act of raising a countersuit results in the two sides “settling out of court”. In cases that do go to the WTO mediation, it is very common for the losing nation to strike back in other product categories.

For a case study, check out the blog post Chicken and Tires. Tit for Tat at the WTO.

The article “US to continue probes into stainless steel sinks from China” has the following
highlights:

A US federal trade panel determined Friday the US industry was “materially injured” by importing stainless steel sinks. The US International Trade Commission (USITC) voted unanimously in the affirmative in the case, which was petitioned by Elkay Manufacturing Company based in Illinois.

The USITC’s move would allow the US Department of Commerce to continue its investigations on imports of these products. The preliminary countervailing duty (CVD) determination is due around May 25, 2012, while the anti-dumping (AD) one is due around August 6, 2012.

These investigations, started on March 22 by the Commerce, intend to impose anti-dumping duty ranging from 22. 81 percent to 76.53 percent and countervailing duty at above 2 percent.

The United States consumed about 303.9 million dollars of stainless steel sinks in 2011, among which nearly 119.1 million U. S. dollars of products were from China, according to the USITC.

If the US governments moves forward with the penalties, we can expect the Chinese will be calling for counter measures. Let’s hope this politically motivated sabre rattling over stainless steel sinks doesn’t spill over into other industries and ignite a trade war.

We believe a full scale trade war is highly unlikely, but “tit for tat” sanctions are to be expecte

How to stay “in the know”

To help readers keep a pulse on potential and active WTO cases, sign up for this RSS feed as we will blog about any cases that have the potential to impact the China sourcing profession.

Wishing you successful China sourcing!

About the blogger

How to choose the China business’ structure?

Mike Bellamy, with CSIC — Mon, 14 May 2012 06:26:06 +0000

Background
When a sourcing project gets to a certain size, it often makes sense to set up a permanent presence on-the-ground in China to help manage the supply chain. This series of blog posts covers some of the key areas of consideration when it comes to setting up in China.

Options for business formation

An outline of the principal forms of business vehicle used by foreign investors to establish an enterprise in the PRC is set out below.

Note: Generally, there are also other types of vehicles, such as cooperative joint ventures (“CJV”), foreign Invested Companies Limited by Shares, holding companies, foreign invested domestic companies, these are all applicable to foreign direct investment. However only the vehicles that are most often used by SME’s are addressed in this manual for practical purposes.

Let’s first look at EJV’s, then in next few blog posts, we will explore the other options.

Equity Joint Ventures
EJVs can only be incorporated as independent legal persons in the form of limited liability companies. For each EJV, there must be at least one foreign partner and one domestic partner.
The liability of each partner to the EJV is limited to the amount of capital it agrees to contribute to the registered capital of the EJV, whilst the EJV itself is liable for its debts to the extent of all its assets.

EJVs, as well as other entities such as CJVs, and WFOEs, are subject to specific requirements regarding “registered capital to total investment amount” ratios. Special approval to exceed these ratios may be applied for, but such approval will only be granted in exceptional circumstances. The same ratio requirements also apply to CJVs and WOFEs.

The main advantage of the EJV structure is certainty, as the regulatory framework for EJVs is older and more well-established than that of other business vehicles. EJVs were the first investment vehicle available after the PRC started to open up to foreign investment in 1979. In addition, EJVs are usually the vehicle of choice for domestic partners and regulators, due to their relatively long history and “plain vanilla” nature. For these reasons, EJVs have in the past been the most commonly used foreign investment vehicle in the PRC.

The benefit of certainty needs to be balanced against the relative inflexibility of the EJV structure, in particular, the requirement that profit distribution must be in proportion to capital contribution.
The law also requires that minority shareholders in joint ventures are given certain protection. Unanimous board approval must be granted for changes to capital or amendments to the articles of association, and in the event that a party intends to sell its equity interest, the other party has a statutory right of first refusal to purchase the interest.

Next Post: Wholly Foreign Owned Enterprises

Written for CSIC by Sophie Mao
China based lawyer at www.Chibridge.net

VAT rebate rate for HS code 843149200

China Sourcing Information Center — Mon, 14 May 2012 01:27:17 +0000

I’m negotiating with a Chinese manufacturer the conditions for products under HS code 843149200. What is VAT rebate for these types of products? Thanks in advance for your support.

ANSWER:

Thank you for your email. I have consulted with a Chinese customs official and can confirm that the VAT rebate rate for HS code 843149200 is 15%. I hope this information helps in your negotiations.

Wishing you successful China sourcing!

Question answered by Mike Bellamy, host of “Ask the Experts” at the China Sourcing Information Center.

One Stop Shops vs. Industry Specialists

China Sourcing Information Center — Fri, 11 May 2012 01:24:06 +0000

I’ve been watching a number of your videos and you hit on many points that I will need to address in building my products.

I am an entrepreneur that has designed luxury machines that run with a smartphone app. I’m producing the casings in the US and want to source the components from China. These components are, in general:
• Digital display
• Touch sensor
• LEDs
• Speaker driver – currently looking at Japanese Flat Panel Speakers
• Internet radio chip w/basic app – currently talking to SMSC, Keystone Semiconductor, Frontier Silicon

I’m currently seeking funding and an engineering partner. I see my engineering partner as someone that will source the components ‘off-the-shelf’ from China and have them shipped to the USA to be assembled on a PCB and inserted into the casings. However, after watching your videos I would like to ask your advice on your thoughts on how to work with Chinese suppliers.

Since I’m a small startup, I would like to find a quality sourcing partner that will:
• research suppliers for each component needed based on input from my engineer
• negotiate price and payment schedule
• provide IP protection
• oversee production
• ensure quality control
• ensure on time delivery.

Can you recommend a partner that would provide all of these services or various partners that provide each important service?

ANSWER:

Happy to offer some ideas.

Many agents claim to be a one stop shop providing in-house inspection, engineering, logistics and sourcing. But I have found these skills are highly specialized and it saves money and time to bring together various partners who are the best in their individual fields. Granted, these partners may be coordinated by one primary partner or central agent, but I like to have control over who is involved and how they are compensated.

For example, let’s look at engineering.

I think you are wise to separate engineering from production partners as you have serious IP to protect. For example, if your sourcing partner is providing engineering support as well as selecting the sub suppliers who will get the order, there may be a conflict of interest if

a) you don’t know who the sub suppliers are

and/or

b) there is compensation from the sub suppliers to the engineering partner.

Here is why:

Non-Disclosure/ Non-Compete Agreements are very hard to monitor and enforce with partners who don’t disclose the identity of the suppliers, as is usually the case with engineering firms who also conduct trading. There is also a concern about design/engineering bias. If the engineering firm is being compensated by the sell side in anyway, then there is a risk they will engineer the product as they see fit in a way that benefits them (trader and hidden supplier), rather than you, the most. For example, the engineering may be tailored to the production methods of that particular factory partner of the engineering/trading company, which may or may not be the design which leverages the best production efficiencies and technologies available in China at a national level.

For your reference, the list of various experts I use to support my projects are made available to the public at http://chinasourcinginfo.org/endorsed-service-providers/ and if you would like me to make an introduction for you, just let me know. Happy to help.

Wishing you successful China sourcing!

Question answered by Mike Bellamy, host of “Ask the Experts” at the China Sourcing Information Center.

Problems with unauthorized gray channel imports

China Sourcing Information Center — Wed, 09 May 2012 01:20:34 +0000

We buy products in China and sell around the world. The brand is under our name. We don’t sell in China, yet I recently discovered my products for sale online in China and now face problems with unauthorized “gray channel” imports into my primary markets. Any suggestions?

ANSWER:

Unfortunately, this is not an uncommon problem. Fortunately, there are ways to fix this problem. The sourcing agency that I own (www.PSSchina.com) was recently brought in by a client to investigate a case and present a solution to the same problem you have raised. Here are some of the highlights for your reference.

Can you look at the products in the gray channel and know where they were made? In our case, investigations confirmed that the majority of products in the gray channels were directly linked to the batches of production in China which were rejected by the buyer due to quality issues.

Strategy implemented:

Purchase Order Templates were adjusted to clarify that rejected goods must be destroyed by supplier at their cost.
3^rd Party Inspectors would be hired to record the destruction.
Client’s brand was registered in China. Previously registered only overseas. With the IP now protected in China. The brand holder can take legal action in China if needed.
3^rd Party Investigators were retained to monitor both Chinese and English language websites like TaoBao.com and T-mall as well as the websites of the contract manufacturers to look for unauthorized products.
3^rd Party Investigators were retained to monitor tradeshows in China and HK to look for unlicensed products.
Brand holder clarified its marketing materials and product packaging to state that only product purchased from authorized distributors are under warranty. In this fashion the demand side could also play a role in preventing gray channels.
Between production runs the tooling was removed from the factory and stored at a 3^rd party facility in China to avoid unauthorized production. (Visit http://www.psschina.com/about/virtual-tour/services-and-pricing/tool-and-die-steward/ to lean about the “Tool & Die Steward.”)

Important Concepts:

Before the adjustments above, the suppliers were essentially selling rejects out the factory back door to subsidize their costs of production. In some cases, because of the tight quality requirements of the buyer combined with the poor quality system of the supplier, this back door income was a significant source of revenue for the suppliers. Cutting off this source of revenue was hard medicine for the supplier to swallow. Two methods proved successful to remedy the situation.

Some suppliers were dropped and a sourcing feasibility study was conducted to find more professional replacements suppliers who could meet targets for price, quality, lead-time and trust.

The suppliers worth continuing to do business with were given a sit down to explain why it was good for the supplier as well as the buyer to cut out the gray channels. Key points included:

Unlicensed products cannibalize revenue of the brand owners. If they lose money, they can’t place as many orders to the factory.
Brand holder is no longer tolerating unlicensed products and the parties involved face significant financial risk when caught.
The defective goods finding their way into the market is hurting brand reputation. If the brand reputation is gone, the orders for everybody will be lost.

Perhaps the most important message conveyed to the suppliers is that the brand wanted to have stable long term relationships with partners who could be trusted. To show their commitment to the suppliers, and to help the suppliers, the brand owners provided the following:

Accurate annual forecasting and projections. Suppliers love stability almost as much as they love volume.
Technical support and training to help suppliers upgrade their quality systems and finally understand that avoiding defects in the first place, not selling defects out the back door, is the best way to protect the supplier’s margin.
Periodic engineering reviews with suppliers to look for ways to reduce costs in production methods and materials, yet not compromise quality. These saving were shared between the factory and brand holder.

Wishing you successful China sourcing!

Question answered by Mike Bellamy, host of “Ask the Experts” at the China Sourcing Information Center.

RMB’s exchange rate more flexible. Your risk just doubled. What to do?

Mike Bellamy, with CSIC — Tue, 08 May 2012 08:42:52 +0000

The China Daily runs the headline “Yuan’s trading reform gains momentum, risk prevention needed.”

Expanding the yuan’s floating band is a significant step of the yuan’s trading reform, but will also increase trading risks for export-oriented firms and banks in the short run, said Lian Ping, chief economist with Bank of Communications.

The exchange rate of the Chinese Yuan or RMB against the USA has been tightly regulated by Beijing to a band of just ½ of a percent. Meaning it could only go up or down so much in a day’s trading. But recently that bandwidth has been doubled to 1%. It doesn’t sound like much, but if you are placing a PO to China in USD, your supplier is factoring their exchange rate risk into the price of the goods sold.

According to our research, suppliers have been building in about 5% of the cost of goods sold for their exchange rate risk. But now that the daily band has doubled, we can expect them to build in about 10% for the exchange rate risk.

What can be done?

Consider paying in RMB. Below are some articles on this topic for your reference.

Are we on the level?

The article states:

Speculative capital inflows are also expected to ease, as the value of the yuan, which has
gained over 30 percent against the U.S. dollar since 2005, is widely believed to have approached an “equilibrium” level.

Since China has a policy of keeping the RMB stable in order to bolster international trade, I am hoping that Beijing’s extension of the daily trading band is an indication that they believe the current
RMB-USD exchange rate will stabilize around the current exchange rate of about 6.3 RMB to 1 USD. This would be good news for us buyers, because not only does stability make it easier to trade, but every time the RMB gets stronger, our cost of doing business goes up.

So let’s keep our fingers crossed that 6.3 is the new 8.26!

8.26 was the pegged rate that was in place for many years before the RMB started to float. Those were the glory days ofChina sourcing.

Pay suppliers in RMB and save big

My appreciation of the RMB depreciation!

Wishing you successful China sourcing!

About the blogger

What is the normal practice for requesting samples from manufacturers in China?

China Sourcing Information Center — Mon, 07 May 2012 01:19:22 +0000

What is the normal practice for requesting samples from manufacturers in China? At first I need to receive small numbers of samples to show that the manufacturer can meet my specifications and has the ability to produce the goods to the standard I require. European and American suppliers can send me samples by normal mail and free of charge. Can Chinese suppliers do this also?

ANSWER:

As you mention, it is quite normal for supplier back home in N. America and EU to provide samples free of charge. However, it is not always the case in China for the following reasons:

The seller may not be familiar with the overseas buyer’s reputation or history, and not realize the opportunity they have to make a good impression by giving free samples.
Chinese companies operate on tight margins, even if they know the buyer is legit, they still may have corporate policy against offering free samples and/or free shipping.

I can respect a supplier that does all they can to keep costs down (especially if those savings are passed on to the customer), so when I am in a situation like yours above where samples are needed, I offer to buy the samples and pay for the shipping, but request that they give me a discount of the same value should the order be placed with them. Since I have done my research in terms of Finding Suppliers and narrowed the potential suppliers down to a handful, I don’t end up spending a lot on samples because I am getting them from 2 or 3 high potential suppliers and I have negotiated a credit to the order.

Wishing you successful China sourcing!

Question answered by Mike Bellamy, host of “Ask the Experts” at the China Sourcing Information Center.

Clarifying the VAT impact

China Sourcing Information Center — Sat, 05 May 2012 01:17:35 +0000

It was interesting to read your article: http://www.smartchinasourcing.com/negotiating/china-tax-understanding-the-china-vat-rebate.html

Thank you for volunteering to clarify on VAT impact. Our company is an Electrical Engineering manufacturer of Switchgears in India. We are importing Porcelain Insulators and Aluminium Casting duly machined for use in Switchgear Industries under HS code 8538900000 – Copper Tungsten contacts… Can you please inform me as to what is the VAT refund that the Chinese suppliers are getting in above HS category? This will help us to negotiate better with suppliers.

ANSWER:

Back in 2006 the rebate was only 9%, but it has gradually increased to the maximum 17% and has been at 17% since 2009.

Wishing you successful China sourcing!

Question answered by Mike Bellamy, host of “Ask the Experts” at the China Sourcing Information Center.

What is the customs duty on cosmetic lasers in India?

China Sourcing Information Center — Thu, 03 May 2012 01:16:34 +0000

What is the customs duty on Beauty (cosmetic) lasers in India?

ANSWER:

I afraid that the China Sourcing Information Center doesn’t have information about the rules and regulations of the Indian government for these products, but I suspect that if you contact a freight forwarder in India, I am sure they could answer your question about the Indian laws and duties in exchange for an opportunity to handle your import shipments. For your reference, here is a link to an article I wrote about how to find a good logistics partner to help you with the importation: Qualifying 3rd Party Logistics (3PLs).

Wishing you successful China sourcing!

Question answered by Mike Bellamy, host of “Ask the Experts” at the China Sourcing Information Center.

Sourcing expert gets the smack down from a QC expert

Mike Bellamy, with CSIC — Tue, 01 May 2012 08:10:14 +0000

In his article “Yes, lean production is possible in China” QC expert Renaud Anjoran of the blog www.qualityinspection.org takes Author and China Consultant Rosemary Coates to task over an article she published entitled “Why China Is Not Ready for Lean Projects” in the Supply Chain Management Review.

I don’t know Mary but I do know Renaud. He is a very humble and quiet gentleman who really knows his stuff. See for yourself at this video entitled ‘Arm’s length buying’ which has him answering questions about China sourcing. Rosemary must have touched a nerve, because the very reserved Renaud drops the gloves with his rebuttal by addressing four pieces of “nonsense” (his words) in Mary’s article as follows:

First nonsense: lean manufacturing is a set of techniques

Second nonsense: classroom training should be enough

Third nonsense: lean principles come from the West

Fourth nonsense: lean thinking is incompatible with Chinese culture

Visit his article to get an education on why the concepts above are nonsense. Great stuff!

BTW, if you want to see Renaud’s review of Mary’s book entitled “42 Rules for Sourcing and Manufacturing in China”, you can visit this link. Be warned, it ain’t pretty.

Here are links to other books reviewed by Renaud. He calls it like he sees it. Enjoy!

Review of Change by Design: How Design Thinking
Transforms Organizations and Inspires Innovation

Review of Toyota Production System: Beyond Large-Scale
Production

Review of Where East Eats West: The Street-Smarts Guide
to Business in China

Review of 42 Rules for Sourcing and Manufacturing in
China: A practical handbook for doing business in China, special economic
zones, factory tours and manufacturing quality

Review of Toyota Kata: Managing People for Improvement,
Adaptiveness and Superior Results

Review of Poorly Made in China: An Insider’s Account of
the Tactics Behind China’s Production Game

Review of Mr. China: A Memoir

Review of Managing the Dragon: How I’m Building a
Billion-Dollar Business in China

Review of River Town: Two Years on the Yangtze

Review of The China Price: The True Cost of Chinese
Competitive Advantage

Let me know if Mary responds to Renaud’s points. I’d love to blog about it.

Wishing you successful China sourcing!

About the blogger
Mike Bellamy is an Advisory Board Member & Featured Blogger at the not-for-profit China Sourcing Information Center (www.ChinaSourcingInfo.org). He is also the author of, “The Essential Reference Guide to China Sourcing” (chinasourcinginfo.org/book) and founder of PassageMaker Sourcing Solutions (www.PSSchina.com)

10 Common Mistakes – Q&A

China Sourcing Information Center — Mon, 30 Apr 2012 19:02:43 +0000

Click on the image below to view this video:

If you are using Internet Explorer or are having problems viewing the video, please click here.

“The 10 most common mistakes made by foreign buyers in China”

Program will offer case studies and solutions relating to the following mistakes:

Poorly defined specs
Not knowing the all-in cost of the “China price”
Failure to audit the factory/ Falling for the golden sample
Failure to conduct due diligence and verify key information
Who’s the project manager?
Payments not liked to performance
Leaky contracts
Arm’s length buying
Registering your intellectual property after you have been knocked off
Not knowing which functions to outsource and which ones to keep in house

Hosted by Mike Bellamy (chairman of the China Sourcing Information Center) featuring a panel of veteran sourcing professionals from CBI Consulting, Fiducia, Asia Quality Focus, Chibridge and PassageMaker.

Common Mistake #10: ‘Not knowing which functions to outsource and which ones to keep in house’

China Sourcing Information Center — Fri, 27 Apr 2012 18:58:06 +0000

Click on the image below to view this video:

If you are using Internet Explorer or are having problems viewing the video, please click here.

“The 10 most common mistakes made by foreign buyers in China”

Program will offer case studies and solutions relating to the following mistakes:

Poorly defined specs
Not knowing the all-in cost of the “China price”
Failure to audit the factory/ Falling for the golden sample
Failure to conduct due diligence and verify key information
Who’s the project manager?
Payments not liked to performance
Leaky contracts
Arm’s length buying
Registering your intellectual property after you have been knocked off
Not knowing which functions to outsource and which ones to keep in house

Chinese-Foreign Lawsuits on the rise in China

Mike Bellamy, with CSIC — Wed, 25 Apr 2012 06:56:02 +0000

What are the reasons for the increase? And is this a good or bad thing?

The China Daily runs the headline “Business lawsuits in sharp increase” and correctly points out that one of the factors for the increased number of cases is that there are more and more foreigners doing business in China. They explain:

… the rise in disputes was partly due to an increasing number of overseas companies entering the mainland.

By the end of November, the mainland had about 453,600 of these companies, up from 426,000 in September 2008, according to figures from the State Administration for Industry and Commerce.

However, another reason for the jump in court cases is related to the background of these new companies coming to China.

Apart from established US companies, we’ve noticed more and more small and medium-sized enterprises, that once ignored the mainland market, are now seeking opportunities on the mainland. Localization is the most difficult aspect for newcomers.

Late entrants are more conservative and unfamiliar with Chinese culture and laws.

Let’s also keep in mind that China’s legal system is relatively new. The article explains:

Legislation concerning overseas-invested enterprises was drafted about two decades ago and may need to be updated. For example, such laws fail to specify the detailed rights and obligations of the mainland and overseas parties.

So we have a combination of a young Chinese legal system and a lot of new-to-China businesses.

What are the other reasons for the increase?

Some reasons not mentioned in the article are as follows.

10 to 15 years ago, foreigners tended to feel they could not get a fair shake in a Chinese court, so they didn’t bother to pursue that option. With China joining the WTO at the turn of the century and the government committed to improving the rule of law to help bring stability to a growing economy, the perception is changing and there is a feeling among foreigners that the playing field is more level these days. As such, it is natural that more and more foreigners would seek relief to their problems in the courts.

In the past, partnering with a Chinese company was much more regulated. It is still very complex, but Chinese and Foreign sides are fairly flexible in negotiating the terms of their partnership, be it a Joint Venture or a simple PO to buy products. The foreign side often uses contract templates from back home which they feel comfortable with. The Chinese side tends to see the contract as more of a memo of understanding rather than strict legal document, and as the China side puts the relationship first, they may sign the agreement without even translating it into Chinese or really understanding it. Unfortunately, this is very dangerous as even if things feel smooth at first, there are most likely icebergs hidden in the water which the foreign partner doesn’t yet see coming. So failure by the two sides to communicate the long term partnership details is a common cause of relationship breakdown and thus the spike in court cases.

“They took the money and ran!”

China’s Legal System

Resolving a dispute: Demand letters and legal options

About the blogger

Written for CSIC by Sophie Mao (China based lawyer at www.Chibridge.net) with support from Mike Bellamy – author of, “The Essential Reference Guide to China Sourcing” (chinasourcinginfo.org/book) and founder of PassageMaker Sourcing Solutions (www.PSSchina.com)

What needs to be marked “Made in China”?

China Sourcing Information Center — Wed, 25 Apr 2012 03:39:04 +0000

I am importing some loose-leaf ring binders made with PP material from China. After arrival in USA they will be filled in USA with materials printed in USA. Do I need the PP binders to be marked “Made In China”? The binders are not sold retail, but are used by a health services co. for their patients. Thanks.

ANSWER:

Based on my experience, the binders would need to be marked made in China (not made in PRC).

Here is why:

Anything that is imported into the US has to be marked in the most permanent and legible manner possible. Even though the binders are just a component for an assembly project in the US, CBP (customs and border protection) is primarily concerned about their condition at the time of importation, so they have to meet the requirement.

Afraid I don’t see that they would be covered under an exception. Additional information can be received from the U.S. Customs and Border Protection Special Classification & Marking Branch, Office of Regulations and Rulings at 202.572.8810.

Question answered with the support of CSIC contributor Elena O. Asturias of www.305cargo.com who is a Licensed Customhouse Broker (CHB)/

NCBFAA Certified Customs Specialist (CCS) + C-TPAT Certified & Verified

Reviewed by Mike Bellamy, host of “Ask the Experts” at the China Sourcing Information Center.

More free resources: business guide to China’s provinces

Mike Bellamy, with CSIC — Tue, 24 Apr 2012 06:16:50 +0000

The team of China experts at Fiducia Management Consultants have put their China business guide on-line. Free for CSIC readers.

Check out the interactive “China Province Report” at http://www.fiducia-china.com/china-insights/china-provinces-map

For each province, the reports introduce the major industries and infrastructure. A quick an easy way to get up to speed if you ...

[Continue Reading]

VAT reform: who wants to save some money?!

Mike Bellamy, with CSIC — Mon, 23 Apr 2012 05:11:31 +0000

In a recent edition of the “China Focus” newsletter, the tax experts at Fiducia reported on the trial tax reforms taking place in Shanghai, in which Business Tax (BT) will be replaced by Value added Tax (VAT). The reforms being tested in Shanghai will eventually be rolled out on a national level (Beijing and other provinces are expected to follow in July 2012, the goal is to cover the whole country and all service categories by 2015) and the “China Focus” article explains in great detail how the changes will affect China based enterprises.

So if you own a factory or sourcing office in China, you better get up to speed quickly on this issue. However, most foreign buyers who don’t have a China based office or factory have not paid much attention to the issue. Unfortunately, ignoring the changes could mean missing an opportunity to save big money. I interviewed Hannes Basten in Fiducia’s Shanghai office to help shed some light on this opportunity for foreign buyers. Here are the main points from Hannes.

Some logistics related services are part of the trial industries and the revised law prescribes for exported services to be free of VAT. That means if an overseas buyer uses such services and the service providers are located in Shanghai there is no tax burden any more (before there was business tax and the service provider needed to pay 3-5% of its turnover to the tax office, depending on the BT rate for that service category). So effectively now the service could be offered~3-5% cheaper than before. To profit from this it is necessary that the service provider applies for export VAT exemption with the tax bureau.
Should your service provider not have the exemption, you might even face a substantial price increase, as for transportation services the applicable VAT rate is 11% compared to 3% BT before.
Beyond logistics, the tax break also applies to consulting services. As many service providers like 3^rd party product inspection and testing have “consulting” rather than “inspection” on their business license, they may also be part of the pilot program in Shanghai.

Strategies to save money

Foreign buyers who use logistics services in Shanghai (later all over China) should ask to see the official receipt (called “Fapiao” in Chinese) for services rendered within 2012. If you receive a VAT invoice you know that your service provider is part of the trial reform. If they are charging VAT, they may either be trying to pocket the tax break rather than passing it on to the buyer or they haven´t applied for tax exemption yet. If they have applied for the exemption they will likely get a refund of the tax at a later point. The strategy for buyers should be to carefully monitor the market prices for logistics services to see which companies are passing on the savings.
Foreign buyers who use inspection services, testing or other consulting services in Shanghai should confirm if their service providers are covered by the tax reforms.
Consider using a Shanghai based service provider while we wait for the program to roll out nationally.
If you are using logistics services from other locations in China, check whether that company has a branch in Shanghai and can issue invoices from there to save on tax.

Key Questions:

Would this tax break be applicable to sourcing agents who have “consulting” in their business license?

Yes, this could potentially be the case. If such companies have not been contacted by the tax office, they should check whether they can become part of the trial or not.

Is Fiducia now passing on the tax break to its clients?

Yes, Fiducia is only charging for those tax items to clients which we have to pay to the tax office ourselves. For all transactions that are now free of tax under the trial our clients 100% profit from the tax breaks.

Reference:

Trial VAT Reform Report – The Death of Business Tax?

http://www.fiducia-china.com/china-insights/china-focus/newsletter/2012/trial-vat-reform-report-the-death-of-business-tax

About the author

Interview conducted by CSIC volunteer Mike Bellamy with Thaddaeus Mueller and Hannes Basten of Fiducia-China.com over the months of April and May 2012.

Common Mistake #9: ‘Registering your intellectual property after you have been knocked off’

China Sourcing Information Center — Thu, 19 Apr 2012 18:55:47 +0000

Click on the image below to view this video:

If you are using Internet Explorer or are having problems viewing the video, please click here.

“The 10 most common mistakes made by foreign buyers in China”

Program will offer case studies and solutions relating to the following mistakes:

Poorly defined specs
Not knowing the all-in cost of the “China price”
Failure to audit the factory/ Falling for the golden sample
Failure to conduct due diligence and verify key information
Who’s the project manager?
Payments not liked to performance
Leaky contracts
Arm’s length buying
Registering your intellectual property after you have been knocked off
Not knowing which functions to outsource and which ones to keep in house

What Buyers Need to Know – 2011 Miami Conference

China Sourcing Information Center — Thu, 19 Apr 2012 06:10:14 +0000

Below, you may find podcasts and Powerpoint presentations from the 2011 Miami Conference, “What Buyers Need to Know”:

Podcast, Part 1

Podcast, Part 2

Powerpoint Presentation 1: “What New Buyers Need to Know”

Powerpoint Presentation 2: “Negotiations, Purchase Orders, and Contracts”

What needs to be marked “Made in China”?

China Sourcing Information Center — Thu, 19 Apr 2012 05:57:36 +0000

ANSWER:

Based on my experience, the binders would need to be marked made in China (not made in PRC).

Here is why:

Question answered with the support of CSIC contributor Elena O. Asturias of www.305cargo.com who is a Licensed Customhouse Broker (CHB)/NCBFAA Certified Customs Specialist (CCS) + C-TPAT Certified & Verified

Reviewed by Mike Bellamy, host of “Ask the Experts” at the China Sourcing Information Center.

Mike Bellamy is an Advisory Board Member & Featured Blogger at the not-for-profit China Sourcing Information Center. He is also the author of, “The Essential Reference Guide to China Sourcing” and founder of PassageMaker Sourcing Solutions (www.PSSchina.com )

Rates on Micro SD Memory Cards

China Sourcing Information Center — Wed, 18 Apr 2012 02:52:43 +0000

What will be the rate of micro SD 2gb memory card in coming days? Its rate keeps going down and down.

ANSWER:

Prices of SD cards, including microSD variants, are expected to drop by 5 percent this first half because of falling NAND flash chip costs.

Exclusive look at data from one of the largest Chinese supplier surveys ever conducted

Mike Bellamy, with CSIC — Tue, 17 Apr 2012 05:51:32 +0000

Dr Neale O’Connor with the School of Business at the University of Hong Kong is interviewing 1000 suppliers in China to understand market trends and challenges. As buyers, it is always good to know what our suppliers are thinking. Dr O’Connor has spent the last 18 months and over $HK300,000 on research, including a team of 14 interviewers, yet it could be months before the full 1000 interviews are complete. Luckily, in an exclusive arrangement with CSIC, our favorite professor is willing to give our readers a sneak peak.

Below are some of the figures from the first 644 interviews with Chinese suppliers.

The pie chart breaks down how China based suppliers answered the question “what is your number one challenge?”

“Cost Control” is the biggest challenge in the eyes of the suppliers. Further questions were asked about how the suppliers plan to implement cost control and below are the results from the first 212 respondents broken down under “no solution” (black), “strategic” (yellow), “managerial” (green) and “human resources” (blue).

After reviewing the data with Dr O’Connor, here is some initial analysis:

Suppliers are responding in different ways to the cost challenges but very few of them are looking to long term solutions like brand building, technology innovation or even moving inland to less expense locations.

Many are seeking short and medium terms solutions.

Short term:

1. collecting more quotations (in other words, trying to twist the arms of their sub suppliers)

2. achieve economies of scales

Medium Term:

1. Automation

2. Improve efficiencies

Interesting that “cost control” challenge is a huge slice but “currency appreciation” challenge is tiny. Perhaps being a bit optimistic, I would take this to mean that suppliers realize that gains in
efficiency can far outweigh losses in currency. This means they are in control of their destiny and I take it as very good news for the future of China sourcing.

The sooner factories realize they can no long depend on the “throw another body at it”
production mentality the better. I am happy to see that according to the research above, more and more suppliers are finally realizing they actually need to learn proper management and efficiency techniques to stay in business. There are some professional factories in China a lot of un-professional factories. I am hoping the increased costs of labor, rents, power, taxes, and currency appreciation will cause a great shake out where only the efficient and well managed
factories survive. As buyers, this will make our lives so much easier, plus there will still be plenty of factories left after the shake out for healthy competition driving down costs.

References:

Here are some blog posts that explain why I feel China has another 5-10 years as the premier sourcing destination:

http://chinasourcinginfo.org/2011/05/10/reports-of-china%e2%80%99s-death-as-a-sourcing-destination-are-highly-exaggerated/

http://chinasourcinginfo.org/2011/08/29/labor-shortage-in-china/

http://chinasourcinginfo.org/2011/08/02/heavy-hitters-weight-in-on-future-of-china-sourcing/

See below for more information about Neale O’Connor and the “Supplier 1000” research.

Neale O’Connor PhD, GDip(Acc), FCPA(Aust)

Associate Professor

School of Business, The University of Hong Kong

Mob +852 93045964

Home page: www.nealeoconnor.com | He can be found on Twitter as @acno1

Director of the China Supplier-1000 Project – www.Chinasupplier1000.com The largest face to face
interview study of Chinese suppliers.

Risks in setting up a partnership agreement

China Sourcing Information Center — Mon, 16 Apr 2012 02:51:00 +0000

I want to be a partner in a company, headed by a Chinese person, in Shenzhen. I am an Indian. What should I do so we both can keep our rights safe? The company is nearly going to be closed, but I can make it stand again. Any agreement format, or any other thing you can suggest?

ANSWER:

I have some good news, some bad news, some more good news, and finally some suggestions.

The good news is that the laws in China have changed over the past decades and compared to the past, these days overseas investors have the right to invest and manage China-based companies (except for in a few protected industries).

The bad news is two fold

Any mistakes you make in setting up the partnership agreement now, will have serious repercussions later. For example, you need to be very careful about liabilities, profit repatriation, global tax exposure, roles & responsibilities, non-compete and so on.
Unless you, the investor, is based in China or has people you trust looking after the investment, it is very easy for local parties to manipulate the books and take advantage of your investment. If you think China is a safe place to do business, you will enjoy the wakeup call in this blog post: http://chinasourcinginfo.org/2011/11/11/is-china-really-a-dangerous-place-to-do-business/

Now some good news. Foreigners can invest successfully in China. I have been doing business here 12 years, and knock on wood, no major problems with partners and legal systems. But I had good advice when I set up my businesses and I keep a close eye on things myself and also engage the help of professional 3^rd parties- especially for legal, tax and accounting issues.

I have taken the liberty, in separate email, of introducing Thaddaeus Mueller of www.Fiducia-China.com. They are the 3^rd party that has advised me on issues of business formation, tax and accounting oversight and compliance. In short, their firm helps overseas investors safely set up and manage partnership agreements.

Thanks again for your question. I hope my reply was helpful to you. I am based in Shenzhen, so let me know how your business works out. Perhaps we can meet up some day!

Wishing you successful China sourcing!

Question answered by Mike Bellamy, host of “Ask the Experts” at the China Sourcing Information Center.

Common Mistake #8: ‘Arm’s length buying’

China Sourcing Information Center — Sun, 15 Apr 2012 18:54:00 +0000

Click on the image below to view this video:

If you are using Internet Explorer or are having problems viewing the video, please click here.

“The 10 most common mistakes made by foreign buyers in China”

Program will offer case studies and solutions relating to the following mistakes:

Poorly defined specs
Not knowing the all-in cost of the “China price”
Failure to audit the factory/ Falling for the golden sample
Failure to conduct due diligence and verify key information
Who’s the project manager?
Payments not liked to performance
Leaky contracts
Arm’s length buying
Registering your intellectual property after you have been knocked off
Not knowing which functions to outsource and which ones to keep in house

DIY or outsource your sourcing?

China Sourcing Information Center — Sat, 14 Apr 2012 02:49:08 +0000

Our company is looking to source the following Micro Drives: CompactFlash+ Type II hard disk micro drives. Some example models are Seagate ST68022CF, ST66022CF and ST64022CF. How should we go about sourcing these?

ANSWER:

Fundamentally, there are two paths you can take.

Option one is DIY.

Option two is to outsource your sourcing. For example, the company I started 10 years ago, PassageMaker, www.PSSchina.com conducts research to help buyers narrow the large pool of potential suppliers down to the top 2 or 3 at a national level which fit your targets for price, quality and lead time. On the website above you will find their service details and fee structure.

But for those that wish to DIY, here are the steps and some tips.

The single most important factor in determining the success or failure of your sourcing program will be finding the right supplier. It sounds obvious, but making apples-to-apples comparisons of vendors at a national level can be daunting.

Initial research generates a list of 50-100 potential suppliers using web directories like www.GlobalSources.com and industry/trade show directories.

Assume the vendor is a middleman until proven otherwise, not the other way around.

Avoid factories that refuse to list the name or location of the production facility. If they only show a HK, Taiwan or other non-PRC address, then they probably don’t own the PRC factory and are a middleman of some sort.

Focus on those factories that can clearly show production experience with your particular product or production method.

Be aware that polished English skills do not reflect production skills. Often the most polished websites are set up by trading companies.

Look for clear information about operation size, equipment and staffing.

Review the 50-100 candidates’ websites and brochures against client’s desired attribute list (but hold of on price until later) and narrow the field down to 15 to 20 candidates. At this point, “first contact” is initiated in the follow ways:

Send an e-mail to ask for initial product-specific information (price, minimum order size, lead time).

Are samples available? If they don’t have samples readily available, they probably don’t deal in your product on a regular basis.

Granted the sales team will be the most polished in terms of English skills, but how is their understanding of your basic requests? If you ask for information on a red umbrella and get sent a sample of a blue shoe, you are going to have problems with communication down the road!

Confirm the actual production location and ask for ownership papers of the factory. Be explicit that the production location may be audited and that this location cannot be changed w/out approval of buyer. (You would be surprised at the number of middlemen who will take the buyer on a visit of a factory only to change the location to a less expensive and poorer quality option after the buyer leaves)

The above research should narrow the field down to about 5 highly qualified candidates. At this stage, Quality Auditors are engaged for a few hundred USD to verify the factory has a sufficient quality control system in place to make the desired product. It is also wise to conduct due diligence to confirm the factory has a good reputation, no legal problems and is sound financially. In other words, verify they are not going to disappear with your deposit and will be around long enough to complete your order! These are essential yet often overlooked steps by those looking to cut corners during research. Unfortunately, due to the massive number of trading companies and aggressive China sales staff who will say almost anything to get your business, visiting the production line in form of an audit is the only way to confirm the real situation.

Based on the results of the factory visits, the next phase is sampling, trial order or even Purchase Order placement with the top vendor or two.

Hope my notes get you pointed in the right direction. Wishing you successful sourcing!

Reference Notes

Visit here to find links to 3^rd parties than can assist with audits and due diligence.

BTW, if you haven’t been to the China trade shows but want to check things out, www.GlobalSources.com has a virtual trade show which has pictures and information on every booth from the recent show. You can also find videos of recent conferences I have hosted on topics related to China sourcing.

3^rd Party Support: www.PSSchina.com

Wishing you successful China sourcing!

Question answered by Mike Bellamy, host of “Ask the Experts” at the China Sourcing Information Center.

Molds and Tooling Costs

China Sourcing Information Center — Thu, 12 Apr 2012 02:47:47 +0000

Do you make a single cavity mold at a low tooling cost, or a 20 cavity mold at higher cost, but much greater efficiencies for large volume production?

…assuming the designers got all the flow considerations right.

ANSWER:

Because the tooling costs are low in China, on most projects that are new, I like to open the single cavity first and run some production parts. These parts can help secure the contracts with the buyer, then when the big order is placed, open the multi cavity in confidence. BUT, since the multi cavity tool is new, there is always a chance for something to go wrong, and a pre-production approval process should take place to make sure the parts are to spec. Sloppy suppliers will run production without getting approved on the parts from the new tooling. Many buyers don’t even ask about the tooling ownership, let alone cavity count, so the “assumption” above makes an “ass” out of everybody, ha ha. I advise buyers to get transparency about tooling situation with their suppliers before going to production.

Wishing you successful China sourcing!

Question answered by Mike Bellamy, host of “Ask the Experts” at the China Sourcing Information Center.

Common Mistake #7: ‘Leaky contracts’

China Sourcing Information Center — Wed, 11 Apr 2012 18:52:24 +0000

Click on the image below to view this video:

If you are using Internet Explorer or are having problems viewing the video, please click here.

“The 10 most common mistakes made by foreign buyers in China”

Program will offer case studies and solutions relating to the following mistakes:

Poorly defined specs
Not knowing the all-in cost of the “China price”
Failure to audit the factory/ Falling for the golden sample
Failure to conduct due diligence and verify key information
Who’s the project manager?
Payments not liked to performance
Leaky contracts
Arm’s length buying
Registering your intellectual property after you have been knocked off
Not knowing which functions to outsource and which ones to keep in house

My friend Kevyn, the Magnum PI of China sourcing

Mike Bellamy, with CSIC — Tue, 10 Apr 2012 09:58:20 +0000

In order to keep tabs on suppliers, Social Audits are a good start, but most of the time they are scheduled in advance and staff interviewed by the auditors know that what they say is being watched closely by factory owners. Plus it is not uncommon for management to coach staff on how to answer the questions to be asked by the auditors.

So how do you really know what a factory is like? Hire an investigator! Below is a bit of an email between myself and the representative, Kevyn, of the firm I eventually hired about how they conduct their investigations.

Here is how we can give you an unbiased view of how the sub-contractor operates when they do not realize they are being monitored.

We do not present name cards when visiting, we may act as an interested buyer. What can that add?

As an interested buyer, we have no right to inspect their accounting books, but we do have the right to inspect their production facilities. If they tell you they can produce 10,000 widgets per day, but have only one production line that is obviously not up to the task, where do they produce? Outsourced. Common problem in China.

As an interested buyer, we might ask for a sample right off the production line. NOT a sample that they have made especially to show you. We would send this sample to you. Is the quality the same as what you were expecting? Are the materials up to speed? If not, you may have a problem. This use of the “Golden Sample” is common in China. The first sample the factory gives you is fine, the large production…not so much.

There are many ways we might approach this problem, one of which includes sending one or more consultants into the factory area looking for a job. A job seeker does not have access to management, like an official Social Auditor may, but a job seeker would have ample opportunity to discuss the working conditions, labor relations, management, etc. at the target factory. Quite a non-traditional way to approach this, but usually very effective.

Our job seeker would approach the workers as they enter or leave the factory, invite them to a meal, have a few beers with them. He would do this for two or three days, targeting a different worker or (ideally) group of workers each evening. Our professional fees for this work are US$500 per person per day (perhaps you would consider two consultants–different factory sites, different points of view, etc.) and the client is responsible for disbursements including travel, lodging, and entertainment.

If you have not done a complete media and Internet search, perhaps you would consider having us do that as well. We target all the traditional media in addition to blogs and chats. We can make telephone calls to reporters, competitors, suppliers, etc. for their comments as well. This does not usually take a lot of time and we can usually do this part for professional fees of US$600 per target investigated.

Add investigations to your China project management tool box!

Wishing you successful China sourcing!

Mike Bellamy

About the blogger

The Chinese Spring Festival and Shipping/Processing from China

China Sourcing Information Center — Tue, 10 Apr 2012 02:46:22 +0000

How does the Chinese spring festival effect shipping and processing products from china?

ANSWER:

If you’re starting projects this month chances are, unless you’ve already had very explicit conversations about delivery dates with your supplier, you may be shocked when your supplier (and everyone in his factory) goes on vacation in Jan and you’re left waiting around for two weeks for an update on production status.

There are two months each year that are horrible to schedule around—the month before and the month after Chinese New Year. (I guess the month of Chinese New Year would be a third, but we’ve learned just not to schedule anything this entire month so I’m not counting it.) This year, the official Chinese New Year is the 23^rd of January, but the traditional family-gathering days start a few days before that. And…and with millions of people heading for home from the east coast provinces the holiday can start as early as a week before the actual day since people can’t get seats on planes, trains or buses back home.

If you’re planning on anything getting done after the 15^th of January you’re asking for trouble.

The Holiday can last anywhere from 5 days (officially) to two weeks for some. Again, add in the difficulty workers face getting a train back to work and the vacation can stretch into February. While all that time off can be a problem, the biggest problem is the fact that many workers will stay home as long as they can afford to. And when they do come back many do not return to their same factory—at least they’ll spend a few days looking at other options before making a commitment.

All of this means a few important things for foreign buyers.

1. On Dec 1^st you may place an order that usually takes 30 days only to find that it won’t ship until Feb 1^st—a full 30 days later than you expected.

The month of December is SUPER busy for most factories. They are taking orders like usual but all along knowing that they’ll not be able to finish many since their workforce slowly fades away as CNY gets closer. Over booking, under capacity, and the inability to schedule maintenance or raw materials (since their sub-suppliers and service people have the same labor issues) is typical at factories this time of year.

2. Of course this means that the month of January, the actual holiday month, can be a complete wash. From the 20^th to the 29^th there will be nothing done. Sure factories will be open for 15 days of this month, but that doesn’t mean that they’ll be getting much done.

Expats and overseas Chinese are also taking advantage of this too. These are the folks with vacation and sick days built into their packages—what better time to use them then the days before and after the official holiday when nothing is happening anyway?!

3. As bad as that can seem to buyers trying to order and take delivery on a deadline, February can be even worse. Why? Because it’s the great unknown. No one knows who is coming back or when/if they’ll actually be back. Some years there is a real glut of workers and factories start back up on time and are full quickly. The last few years though, there have been job vacancies at many factories stretching into March!

The keys to Chinese New Year are patience and flexibility. There are a few things that your supplier honestly can’t control—a lack of labor around CNY is one of them. So you’ve got to be able to roll with the punches over the next 90 days.

Don’t place time-sensitive orders in December or January.
Don’t change existing orders or ask for rush service during this time of year.
Plan ahead—it’s not like Chinese New Year is a surprise, you can plan for it each year.
Don’t get mad at your supplier when they tell you that production times are double what they were if the same project had been started in November. Likely, he’s pissed too, but he knows he can’t do anything about it (and he thinks you’re a jerk for not understanding that too).
If it sounds too good to be true (“Yes, we think we can just fit this in before the holiday starts”) it probably is. Only you’ll not find out about the soon-to-be missed delivery date until mid January when it’s too late to do anything about it.

Most importantly, for 1.5 billion people this is the most important holiday (and also the only holiday, for some) of each year. No matter your order/emergency, it’s not as important to them as their time off with family that they haven’t seen since last Chinese New Year.

Market trends and forecasts

China Sourcing Information Center — Sun, 08 Apr 2012 02:45:14 +0000

Do you have current/forecasted market information on the wire and cable industry internationally? Such as what are the market trends – not just in retail but in government and industrial markets, etc.?

ANSWER:

China’s connectors and cable assembly industry is poised for continuous growth as makers boost production and R&D capability to push the line up the value chain. The first initiative is also under efforts to meet rising demand from North America, Europe and emerging markets. Expansion plans are underway to boost yield by as much as 20 percent.

R&D work emphasizes the shift to variants supporting the latest standards, including HDMI 1.4, USB 3.0 and SATA III. New interconnect types are being explored as well. Companies are also enhancing product performance, with compact and modular designs, fine pitch, improved reliability, high frequency and longer operating life as the key goals.

To learn more about China’s connectors and cable assembly industry, please download China Sourcing Report: Connectors & cable assembles. http://www.chinasourcingreports.com/csr/connectors-cable-assemblies

Common Mistake #6: ‘Payments not liked to performance’

China Sourcing Information Center — Sat, 07 Apr 2012 18:50:51 +0000

Click on the image below to view this video:

If you are using Internet Explorer or are having problems viewing the video, please click here.

“The 10 most common mistakes made by foreign buyers in China”

Program will offer case studies and solutions relating to the following mistakes:

Poorly defined specs
Not knowing the all-in cost of the “China price”
Failure to audit the factory/ Falling for the golden sample
Failure to conduct due diligence and verify key information
Who’s the project manager?
Payments not liked to performance
Leaky contracts
Arm’s length buying
Registering your intellectual property after you have been knocked off
Not knowing which functions to outsource and which ones to keep in house

Manufacturers in and around Ningbo

China Sourcing Information Center — Fri, 06 Apr 2012 02:41:28 +0000

I am visiting Ningbo for sourcing small kitchen appliances like Food processors, Hand Blenders, Rice cookers, Electric Motors etc. Where can i get a list of manufacturers in and around Ningbo

ANSWER:

Cixi, which is a city within the sub-provincial city of Ningbo, is one of China’s main production hubs for juicers, blenders and food processors. It is home to more than 200 makers of the line. It has strong plastic and molding industries, and low labor costs. There are also a number of plastic-processing and molding factories in nearby Yuyao and Taizhou.

Statistics on sales volumes for USA brands

China Sourcing Information Center — Wed, 04 Apr 2012 02:39:50 +0000

I need statistics on sales volumes for USA brands in children’s, menswear, women’s, intimates, underwear, sleepwear accessories, and activewear sportswear.

ANSWER:

Here are available figures for China’s exports to the US of the following HS codes during Jan to Dec 2011: HS Code 61 – Knitted apparel & clothing accessories2,522,639,857 pieces2,353,227,692 pairs47,506 tons HS Code 62 – Woven apparel & clothing accessories2,188,146,111 pieces101,949,291 pairs11,702 tons

Common Mistake #5: ‘Who’s the project manager?’

China Sourcing Information Center — Tue, 03 Apr 2012 18:48:56 +0000

Click on the image below to view this video:

If you are using Internet Explorer or are having problems viewing the video, please click here.

“The 10 most common mistakes made by foreign buyers in China”

Program will offer case studies and solutions relating to the following mistakes:

Poorly defined specs
Not knowing the all-in cost of the “China price”
Failure to audit the factory/ Falling for the golden sample
Failure to conduct due diligence and verify key information
Who’s the project manager?
Payments not liked to performance
Leaky contracts
Arm’s length buying
Registering your intellectual property after you have been knocked off
Not knowing which functions to outsource and which ones to keep in house

Is there hope for IPR in China?

Mike Bellamy, with CSIC — Tue, 03 Apr 2012 09:27:52 +0000

In my blog (here, here and here) I often talk about the lack of Intellectual Property protection in China and try to offer some solutions to protect ourselves. But today I am happy to say there was some positive news about IP reported in the China Daily:

All government departments at, and above, county level will use licensed software by the end of 2013 in the latest move to protect intellectual property rights (IPR).

Industry insiders predicted that the move will create a wave of business opportunities for software providers, especially for foreign brands.

A source from the Ministry of Commerce said all government departments in 600 cities and 2,900 counties will use licensed software by the end of 2013, while the 31 provincial-level governments will promote the use of licensed software by the end of next June.

The move came after 135 central government departments, including all ministries, completed installing licensed software at a cost of more than 140 million yuan ($22 million) in May.

Let’s hope this is not just a symbolic gesture, but actually demonstrates that Beijing is commitment to protecting IP. They have a long way to go!

Wishing you successful China sourcing!

Mike Bellamy

About the blogger

Breakdown of subcontracting cost

China Sourcing Information Center — Mon, 02 Apr 2012 02:38:46 +0000

If you place an order with a supplier and they subcontract that order to another Chinese supplier, what percent of the cost of sub contractoring contributes to the end price?

ANSWER:

Subcontracting does not add any costs, on the contrary the supplier subcontracts to others at lower cost and the remaining part is the supplier’s profit, and the total costs/price does not change from the buyer’s perspective.

Doing due diligence and background investigations.

China Sourcing Information Center — Sat, 31 Mar 2012 02:37:19 +0000

Is there a “chamber of commerce” kind of thing in China? I want to do some background investigations before making a shortlist of possible suppliers and hand that list over to a specialist for further due diligence

ANSWER:

Buyers can contact China Council for the Promotion of International Trade (CCPIT) Website: http://bizchinanow.com/index.htm Address: 1 Fuxingmenwai Avenue, Xicheng District, Beijing, China Tel: (86-10) 88075000 Fax: (86-10) 68011370

But I suspect you will have better results if you hire an investigation agency (www.CBIconsulting.com.cn) or a sourcing agency (www.PSSChina.com) for example.

Common Mistake #4: ‘Failure to conduct due diligence and verify key information’

China Sourcing Information Center — Fri, 30 Mar 2012 01:11:26 +0000

Click on the image below to view this video:

If you are using Internet Explorer or are having problems viewing the video, please click here.

“The 10 most common mistakes made by foreign buyers in China”

Program will offer case studies and solutions relating to the following mistakes:

Poorly defined specs
Not knowing the all-in cost of the “China price”
Failure to audit the factory/ Falling for the golden sample
Failure to conduct due diligence and verify key information
Who’s the project manager?
Payments not liked to performance
Leaky contracts
Arm’s length buying
Registering your intellectual property after you have been knocked off
Not knowing which functions to outsource and which ones to keep in house

How should I record and manage factory conditions?

China Sourcing Information Center — Thu, 29 Mar 2012 02:34:20 +0000

Do Chinese factories have labor unions and does the government keep records of complaints from workers for a specific factory? Our company wants to make sure that the suppliers comply with local and international law (regarding forced labour for ex, working time) and we think our social audit might be not be enough to find out the real situation.

ANSWER:

Factories over a certain size are required to have a labor union. But the unions here are very different than the concept in N. America or Europe. They are not very adversarial and don’t really serve as collective bargaining tool to represent the workers and gain concessions from factory boss. They may offer suggestions and complaints, but that doesn’t mean management is forced to take the advice. Because they don’t have much power in the relationship (more and more power each year, but still not powerful like a French union) it is rare they would go outside to the government to express a complaint. Disgruntled employees may go to the government as individuals, but very rare that the union leader would make the complaint. So if you are trying to understand how your supplier treats their staff, talking to the union rep or local government would most likely not give you a good snap shot of what is happening since the union, government and factory owners are often working in a close and mutually benefiting relationship.

Social Audits only cost a few 100 USD and are a great tool at catching any big red flags- forced labor, dangerous work conditions. I would agree with you that a social audit might not be enough to find out the real situation in terms of wages paid and hours worked. For example, when your auditors arrive, even if un-announced, the line workers know that the factory management is watching what they say to the auditors. They may have even been training what to say to auditors.

The only tool I know to really understand what is happening inside the factory is to take a look from the inside of the factory. In other words, go undercover to get the truth. Many buyers don’t realize there are investigators who for a reasonable fee can discretely conduct business intelligence. They interview staff in private after work and sometimes even go into the factory undercover as foreign buyers or Chinese employees. The best part is that the factory doesn’t even know they are being watched and you get the real take on the situation.

References

www.cbiconsulting.com.cn is the company I use for investigations and due diligence. www.AsiaQualityFocus.com is the firm I recommend for social audits. Readers may contact me if you would like me to make an introduction.

Wishing you successful China sourcing!

Question answered by Mike Bellamy, host of “Ask the Experts” at the China Sourcing Information Center.

Pay suppliers in RMB and save big

Mike Bellamy, with CSIC — Tue, 27 Mar 2012 08:48:26 +0000

The China Daily ran an interesting article about how more and more UK retailers are paying their Chinese suppliers in RMB (Chinese Yuan or CNY) rather than USD or Euros.

With the yuan having appreciated at least 7 percent against the dollar since June 2010, Chinese suppliers commonly embed a “buffer” into dollar-denominated contracts to guard against further yuan appreciation.

How much can be saved if this buffer is removed by settling in RMB rather than USD?

According to Barclays Capital, the investment banking division of Barclays PLC, more British retailers are paying in yuan to achieve cost savings of up to 8 percent.

What’s the downside for buyers?

Settling in RMB removes the risk for the seller but transfers the risk to the buyer as the buyer is holding RMB in their account. Say for example, your order takes 3 months to produce and you agree to pay in RMB. If the exchange rate changes during this time, the risk is on the buy side. Luckily, the RMB’s exchange rate is tightly controlled by Beijing and we haven’t seen any major short term fluctuations.
The other problem is that you can’t walk into your local main street USA bank and open up a RMB account. At the time of writing, I believe only banks in Hong Kong and recently London are offering businesses the option to open RMB accounts. More cities will come on line in future, but at present, most buyers can’t deal in RMB even if they wanted to. But this is going to change fast, so get ready to deal in RMB and take advantage of the savings.

Wishing you successful China sourcing!

Mike Bellamy

About the blogger

The seller wants 100% up front. What should I do?

China Sourcing Information Center — Tue, 27 Mar 2012 02:32:49 +0000

I am a first time buyer and the seller is insisting that I should pay 100% in advance by TT or Western Union. What should I do? How can I verify the dealer is genuine or just another player.

ANSWER:

Generally speaking, the payment terms are negotiable. Unless you are buying a very small order, the normal payment terms are 30-70. 30% deposit and 70% AFTER independent inspection. I would also like to direct you to the following links for articles and videos which cover this topic:

http://chinasourcinginfo.org/2011/11/17/finding-suppliers/

http://chinasourcinginfo.org/2011/11/19/evaluating-suppliers/

http://chinasourcinginfo.org/2011/09/30/first-order-jitters-placing-an-order-with-a-manufacturing-company-in-china-for-the-first-time/

http://chinasourcinginfo.org/2011/11/21/how-do-we-choose-a-good-manufacturer-in-china/

http://chinasourcinginfo.org/ask-a-question/i-have-a-list-of-potential-suppliers-can-you-help-me-determine-which-one-is-a-good-fit-for-me-and-if-they-are-legitimate-companies/

http://chinasourcinginfo.org/2011/12/07/how-can-i-be-sure-the-products-i-want-to-buy-are-genuine/

http://chinasourcinginfo.org/2011/02/16/can-we-trust-our-suppliers/

Wishing you successful China sourcing!

Question answered by Mike Bellamy, host of “Ask the Experts” at the China Sourcing Information Center.

Learn how Global Sources can help you source

China Sourcing Information Center — Tue, 27 Mar 2012 01:15:40 +0000

Click on the image below to view this video:

If you are using Internet Explorer or are having problems viewing the video, please click here.

Hello, I’m Mike Bellamy, author of “the essential reference guide to China sourcing” and owner of PassageMaker Sourcing Solutions.

I’ve been living in China full time now for over 12 years, and it is my pleasure to offer in this short video, some tips on how to leverage the resources available at Global Sources.com

Most of you already know that at Global Sources.com you will find long lists of potential suppliers for just about any product. And in an earlier video titled “Finding Suppliers” and the video called “Evaluating Suppliers” we talk about how to narrow down that long list of potential suppliers to the best supplier for your particular order.

But for today’s video, I was asked to offer some other tips about using the global sources website.

Keep in mind that the following tools are all free!

1. If you want to stay in touch with the latest trends in Sourcing, you would be wise to sign up or RSS the following websites which are in the global sources family.

At Global Sources’ sister site, www.Smart China Sourcing.com you will find a lot of great content from sourcing professionals covering topics ranging from paying suppliers to managing QC.

At GlobalSources.com at the bottom of each product category home page “electronics” for example, you will find free resources such as industry news, surveys and a showcase called “what every buyer needs to know”.

2. There is also a free “ask the experts” services where you can send in your specific questions and people like myself will provide feedback and get you pointed in the right direction on issues of China sourcing.
3. There are 18 “global sources e-magazines” that come out each month, each covering a different industry. This is a good tool to get a feel for what products are available in a given industry. The magazine is pretty thick with a lot of content, but I like to flip thru to keep an eye on trends and see which suppliers are making which products.

4. It is always a good idea to come to China to hit a trade show and visit suppliers face to face. Ideally at their factory. But if you are not quite ready to make the flight over, you may be interested to know that Global Sources now hosts a virtual trade show on line. At the recent tradeshows, Global Sources staff went around to each booth and took pictures for the virtual trade show online.

5. Speaking of trade shows, on global sources.com you will also find a comprehensive list of trade shows broken down by industry and location. Not only does global sources list their own trade shows, but they also list all the other trade shows. If you do come and check out any of the global sources trade shows in person, make sure to attend the China sourcing seminar series. It’s free as well. Some of the seminars were recorded and are available at www.OnlineSourcingFair.com

6. I’d also like to address the term “verified supplier” which you will find online at global sources.com. In my opinion, global Sources goes out of their way to ensure the suppliers on their website are professional. Global Sources staff even visit some of the factories. But, China is a massive market and things at the factory level can change suddenly. So just because a factory has a high ranking in the star system today, it is not a guarantee that they will be professional tomorrow. BUT, having said that, if the factory has high ranking with global sources, and if they have maintained a booth at the trade show for many years and if they advertise in the global sources e-magazines, then there is a much higher likelihood that they will be good suppliers for you. But, as I said, because things can change so quickly, a key manager leaves, the factory moves, staff don’t return from Chinese new year holiday, raw material pricing goes up, quality goes down….a great supplier today is not a guarantee they will be a great supplier tomorrow, so as buyers, it is our responsibility to conduct due diligence and qualify our vendors. The Global Sources verified supplier ranking is an excellent start. But it is just start of the process. Check out the videos called finding and evaluating suppliers if you want to learn tips for checking out a factory.

See you next time. Wishing you successful China sourcing!

Common Mistake #3: ‘Failure to audit the factory/ Falling for the golden sample’

China Sourcing Information Center — Mon, 26 Mar 2012 01:10:31 +0000

Click on the image below to view this video:

If you are using Internet Explorer or are having problems viewing the video, please click here.

“The 10 most common mistakes made by foreign buyers in China”

Program will offer case studies and solutions relating to the following mistakes:

Poorly defined specs
Not knowing the all-in cost of the “China price”
Failure to audit the factory/ Falling for the golden sample
Failure to conduct due diligence and verify key information
Who’s the project manager?
Payments not liked to performance
Leaky contracts
Arm’s length buying
Registering your intellectual property after you have been knocked off
Not knowing which functions to outsource and which ones to keep in house

What’s the securest payment method, and who can I trust?

China Sourcing Information Center — Sun, 25 Mar 2012 02:31:44 +0000

What payment method is the securest one? How can I trust a supplier who is very far away from my country?

ANSWER:

To help answer your question, I would like to direct you to the following links for articles and videos which cover this topic:

http://chinasourcinginfo.org/2011/11/17/finding-suppliers/

http://chinasourcinginfo.org/2011/11/19/evaluating-suppliers/

http://chinasourcinginfo.org/2011/09/30/first-order-jitters-placing-an-order-with-a-manufacturing-company-in-china-for-the-first-time/

http://chinasourcinginfo.org/2011/11/21/how-do-we-choose-a-good-manufacturer-in-china/

http://chinasourcinginfo.org/ask-a-question/i-have-a-list-of-potential-suppliers-can-you-help-me-determine-which-one-is-a-good-fit-for-me-and-if-they-are-legitimate-companies/

http://chinasourcinginfo.org/2011/12/07/how-can-i-be-sure-the-products-i-want-to-buy-are-genuine/

http://chinasourcinginfo.org/2011/02/16/can-we-trust-our-suppliers/

Wishing you successful China sourcing!

Question answered by Mike Bellamy, host of “Ask the Experts” at the China Sourcing Information Center.

How can I tell the real suppliers from the fake ones?

China Sourcing Information Center — Fri, 23 Mar 2012 02:29:22 +0000

I received email from some company and I went to their web site and they had ATV’s, motorcycles, computers, laptops, and other products. I was going to order some things from them and I tried to go back to the web site but the site for this company was not there anymore. Now, there are more companies sending me emails with the same products as that first company, but how do I know if they are real and if the products they show are what they will actually send me?

ANSWER:

I’m so glad you paused and didn’t buy right away. I think you were almost the victim of a growing scam in Asia. In the past weeks, we have been contacted with a handful of people who fell for the scam. In short, if a seller offers a wide range of branded products at unreal pricing- it probably is too good to be true. Here is the link to my blog post explaining the scam and offering tips to avoid these traps: Red flags to suspect the supplier is not legit (http://chinasourcinginfo.org/2012/02/10/red-flags-to-suspect-the-supplier-is-not-legit/)

The second half of your question was about how to determine if the supplier is a legit vendor. The following short videos should help get you pointed in the right direction:

http://chinasourcinginfo.org/2011/11/17/finding-suppliers/

http://chinasourcinginfo.org/2011/11/19/evaluating-suppliers/

I would also like to introduce PassageMaker Sourcing Solutions. If you need further support finding and managing legitimate suppliers in China, they would be the go-to-guys for you. I started that company over 10 years ago to help buyers avoid getting ripped off. You can learn more at www.PSSchina.com.

Thanks again for your email. Let me know how things work out for you.

Wishing you successful China sourcing!

Question answered by Mike Bellamy, host of “Ask the Experts” at the China Sourcing Information Center.

Common Mistake #2: ‘Not knowing the all-in cost of the “China price”’

China Sourcing Information Center — Fri, 23 Mar 2012 01:10:17 +0000

Click on the image below to view this video:

If you are using Internet Explorer or are having problems viewing the video, please click here.

“The 10 most common mistakes made by foreign buyers in China”

Program will offer case studies and solutions relating to the following mistakes:

Poorly defined specs
Not knowing the all-in cost of the “China price”
Failure to audit the factory/ Falling for the golden sample
Failure to conduct due diligence and verify key information
Who’s the project manager?
Payments not liked to performance
Leaky contracts
Arm’s length buying
Registering your intellectual property after you have been knocked off
Not knowing which functions to outsource and which ones to keep in house