360° Coverage : Sourcing Goods And Suppliers In China: A How-To Guide For Small...

2 Updates
Sourcing Goods And Suppliers In China: A How-To Guide For Small Businesses
Photo Credit: Forbes Business

Sourcing Goods And Suppliers In China: A How-To Guide For Small Businesses

Jan 6 2014, 1:34pm CST | by

By Richard N. Frasch and Charlotte Zhanghaixia Westfall Horace Greeley, the famous early American newspaper editor and founder of the New York Tribune in the mid-1800s, famously responded to the...

Filed under: news

 
 
 

41 weeks ago

Sourcing Goods And Suppliers In China: A How-To Guide For Small Businesses

Jan 6 2014, 1:34pm CST | by

By Richard N. Frasch and Charlotte Zhanghaixia Westfall

Horace Greeley, the famous early American newspaper editor and founder of the New York Tribune in the mid-1800s, famously responded to the question of how to become rich with the statement “Go West, young man!” The same advice is often slightly reformulated and given today as “Go East, young entrepreneur!” Although people today can argue about the correct direction to go to China from the United States, the essence of the statement still holds true today!

Many people predict that China will be the largest economy in the world in the 21st century and will soon surpass the United States. Although the relative cost of manufacturing in China has risen in recent years, the country is still often the cheapest location for American retailers and manufacturers to source goods or parts.

This article is first in a series exploring how U.S. companies can source goods in China, and it focuses on how those companies that cannot afford to establish overseas offices or manufacturing operations can effectively and efficiently source suppliers in China. We will focus on how a smaller U.S. company can and should go about locating suppliers in China.

Internet Search

The easiest and most cost-effective place to start a search for suppliers in China is on the Internet via search engines such as Bing or Google, and B2B sourcing platforms like Alibaba, Global Sources, and Made-in-China.com. Thousands of suppliers are listed on these sites, and you can streamline your search and increase the number of legitimate sources by filtering results for only those entries labeled as “gold member,” “verified supplier,” “onsite supplier,” or “accredited supplier.” Good reviews offer some indication that the supplier is legitimate. Some B2B sourcing platforms have endorsed service provider lists and supplier blacklists. For example, Alibaba has a list of banned members.

Some sites also offer special services to further protect buyers. For example, Global Sources has credit-check services and supplier-capability-assessment services that will provide suppliers’ key business information including company status, production capabilities, and product quality.

Be aware that verified suppliers at these sites may only mean that the companies are verified to exist; it does not necessarily mean that their reputation, production capability, or quality have been verified (for example, a gold member at Alibaba is a paid status). Further, while these sites have large directories of “suppliers,” some are simply traders or wholesalers, not manufacturers. You won’t get the best price from traders or wholesalers, so you need to do your own diligence on potential suppliers.

It is worth mentioning that Global Sources also has China Sourcing Reports (CSRs) that have in-depth studies focused on specific sourcing industries in China. In the CSR, you can find qualified suppliers and their verified contact information. This report also provides industry overviews, top-selling products, and other pricing and market information, although such information may not always be up-to-date.

Social Media

Social media is not necessarily an ideal platform to identify suppliers. Only some suppliers have a social media presence, but they can be a good source for feedback or reviews of potential suppliers. Therefore, be cautious when relying on such platforms and remember to do your own due diligence as the information provided is often unverified, reviews are often anecdotal, and sample sizes may be small.

Also, there are now many professional LinkedIn groups focused on sourcing in China:

In addition, some forums such as the Alibaba forum, Smart China Sourcing at Global Sources, and China Sourcing Blog offer good tips. Finally, be sure to check on any complaints other people may have shared at Ripoff Report.

More AllBusiness:
The Top 25 Home-Based Business Ideas
10 Websites Where You Should Have Your Company Profile Listed
25 Frequently Asked Questions on Starting a Business
The 10 Most Creative New Business Ideas Out There/>/>/>/>

Trade Shows

Trade shows are another way to find legitimate suppliers. By attending trade shows, you have the opportunity to talk to potential suppliers face to face about their companies, products, production capacity, quality-control procedures, and other key business areas. Such direct interaction can help you evaluate suppliers and verify their abilities.

Two trade shows in China are worth mentioning. The Canton Fair is the largest trade fair in China and is held twice a year in Guangzhou, located near Hong Kong in southern China. The Canton Fair attracts thousands of attendees with a huge variety of products. The East China Fair is the largest regional trade fair in China, and is held once a year in Shanghai. There are other regional trade fairs in China that are usually industry-specific. Search China Sourcing Fairs for specific industries./>/>

If you want to avoid the headache of traveling internationally, there are also trade shows in the U.S. that have a significant Chinese presence. These trade shows are generally industry-specific. For example, the International Consumer Electronics Show (CES) in Las Vegas has many Chinese participants. The downside of such shows is that you may be limited to a small pool of potential Chinese suppliers because many of them will not attend these trade shows, and therefore you may not get the best deal possible. Also, you may be out of luck if the product you are sourcing is not covered at one of these domestic trade shows.

Effective communication is very important when attending trade shows. The good news is that most exhibitors have handouts in English, and many speak English. The bad news is that many have limited spoken English skills. Consequently, if you decide to pursue a transaction with a Chinese company, you will have to retain a translator later on in the diligence and negotiation process. Finally, be aware that not all suppliers at these trade shows are manufacturers (some are traders or wholesalers), so be sure to ask them about this directly.

Verify Suppliers

It is essential to perform adequate diligence on potential suppliers. The information provided by a potential supplier on its website and other media channels is a good start, but you need to verify whether a supplier in fact exists and is what it claims to be.

This verification can be done in a number of ways. Arrange a visit to the relevant local government agency to check the company’s registration. You need to know whether the supplier has the necessary production capability, certificates, and communication and technology skills to meet your expectations in terms of quality, quantity, and delivery times. You also need to confirm in some fashion the supplier’s financial statements by, for example, requesting audited statements from the supplier, or at least requesting statements prepared by a reputable Chinese accounting firm, in order to get a sense of the potential supplier’s assets and capital base to estimate whether you would be able to recover any loss should a contractual dispute arise.

Buying Directly from Suppliers

Once you are able to identify, verify, and vet a potential supplier, you can buy products directly from them or through a B2B sourcing platform. Buying directly from suppliers can save you money if everything goes smoothly, but it also leaves you open to the risk of being scammed or not getting your money back if the products turn out to be of poor quality.

Another important issue is the type of payment. Safer payment options include paying through a bank letter of credit issued by your bank or an escrow with a reputable third party. Other higher-risk payment options such as credit cards, wire transfers, or similar payment methods can also be used, but many of these methods do not always provide reliable dispute mechanisms to recover payments when fraud or other contractual problems arise.

Commission-Based Sourcing Agent

If buying directly from a supplier sounds like too much trouble and risk, you can seek help from a commission-based China sourcing agent who has sourcing experience. These agents can help identify and verify suppliers and facilitate communications. Their fees can range from 3 to 10 percent of the purchase price.

While sourcing agents may do some of the “heavy lifting,” including identifying and verifying suppliers, you still need to stay closely involved with the purchase transactions. Often, commission-based sourcing agents are not equipped or sophisticated enough to manage production and quality control effectively or to make sure transactions are done cost-effectively. Be aware that there might also be hidden commissions between sourcing agents and Chinese manufacturers. The good news is, after working with sourcing agents a few times and familiarizing yourself with the process, you can eventually manage your own deals without their help.

Sourcing Service Provider

If you want someone who can help you with the entire sourcing process from end-to-end, hire a sourcing service provider, which can provide a wide range of services: supplier identification, price negotiation, supply management, quality control management, logistics and shipment management, and other sourcing matters.

Sourcing service providers charge certain fees for managing purchase transactions, but there are pluses and minuses to consider. On the plus side, a sourcing service provider can relieve you of the hassle of identifying and verifying suppliers, production inspection, product quality control, and logistics arrangement. However, using such a service denies you the opportunity to learn about the Chinese markets. Also, the cost of using a sourcing service provider runs higher than using a commission-based sourcing agent, so expect more upfront costs at the beginning of the transaction.


Trading Company/>

A trading company may be a good option if you want to buy a small amount of products and don’t wish to deal with all the complexities of sourcing in China. The trade-off is that your costs will generally be higher, as a trading company will make a margin on the goods being sourced. You will also find it hard to discover information about the supply chain, and you will still need to be on the lookout for product quality issues.

Sourcing goods in China poses many risks for U.S. companies, ranging from poor quality goods to fraud to difficulty in enforcing contracts. Of course, all of these risks are not unique to China but because it is still a developing country, the potential for such risks are often much greater than in developed countries. However, the potential for significant cost reductions may make this risk worth it as long as you do your research beforehand and proceed with caution. In our next article, we will address common mistakes U.S. companies make when sourcing suppliers in China.

Charlotte Zhanghaixia Westfall is a corporate and securities attorney based in San Francisco with both U.S. and Chinese legal training, who advises U.S. and Chinese clients on cross-border business strategies and related legal issues.

Read all of Rick Frasch’s articles on AllBusiness.com.

Related Articles on AllBusiness:
How to Plan Your First Business Trip to China
How to Use Currency Hedging to Protect Your Import or Export Business
Small Businesses Grow by Exporting to Mexico
Why Your Business Should Start Exporting in 2014/>/>/>/>

For more great small business articles such as The Top 25 Home-Based Business Ideas and Keeping Your Business Ideas Confidential, visit AllBusiness.com and AllBusiness Experts. For local business information on 15 million businesses, be sure to check out InBusiness.com.

Source: Forbes Business

 
Update
2

7 weeks ago

Khazanah throws MAS RM6b lifeline

Aug 29 2014 5:01pm CDT | Source: Business Times Singapore

August 30, 2014 1:15 AMKHAZANAH Nasional will inject RM6 billion (SS$2.4 billion) over three years to resuscitate loss-making Malaysia Airlines (MAS) under a recovery plan that includes even an Act of Parliament. Other key moves are migrating its operations, assets and liabilities to a new ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 
Update
1

7 weeks ago

MAS posts loss of RM307m for Q2

Aug 28 2014 5:00pm CDT | Source: Business Times Singapore

August 29, 2014 1:13 AMMALAYSIA Airlines (MAS) registered a loss of RM307 million (S$122 million) for the second quarter to end-June, but warned of worse to come in the second half when the "full financial impact of the double ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Non-smokers face major health risks in smoking homes
London, Oct 21 (IANS) Living with smokers is as bad as living in smoke-free homes in heavily polluted cities such as Beijing or London, researchers said.
 
 
Finally Nepal, India sign power trade agreement
Kathmandu, Oct 21 (IANS) Nepal and India here Tuesday formally signed a landmark power trade agreement (PTA), allowing exchange of electricity, which is expected to open up new vistas of cooperation in the hydropower sector between the two energy-starved nations.
 
 
Depressed people, too, believe in brighter future
Toronto, Oct 21 (IANS) Like most adults, even depressed people believe in a brighter future, but for them this optimistic belief may not lead to better outcomes, found a research.
 
 
Indian-origin sisters develop tool to detect lung, heart disease
Washington, Oct 21 (IANS) Two Indian-origin high school students Ilina and Medha Krishen have developed screening tools to detect lung and heart disease using electronic stethoscopes.
 
 
 

Latest from the Network

1,074 new dengue cases in Chinese province
Beijing, Oct 18 (IANS) China's Guangdong province has reported 1,047 new cases of dengue fever, health authorities said Saturday. Six people have already died in Guangdong -- five in Guangzhou and one in adjacent...
Read more on Business Balla
 
Blake Lively 'always' wanted to be mum
Blake Lively has ''always'' wanted to be a mother. The 27-year-old actress is expecting her first child with husband Ryan Reynolds and she admits she's been dreaming of this moment since she was a youngster. Speaking...
Read more on Celebrity Balla
 
Kris Jenner 'torn apart' by Bruce's new relationship
Kris Jenner feels ''torn apart and angry'' that Bruce Jenner is dating her former assistant. The 58-year-old matriarch split from the 64-year-old Olympic gold medalist last October following 22-years of marriage but is...
Read more on Celebrity Balla
 
Cheryl Fernandez-Versini won't move to France
Cheryl Fernandez-Versini doesn't want to move to her husband's home country of France. The 'X Factor' judge, 31, who comes from Newcastle, is adamant she won't be relocating any time soon to suit her new spouse Jean-...
Read more on Celebrity Balla
 
Lance Bass sets wedding date
Lance Bass has set a date for his wedding. The former *NSYNC singer and his partner Michael Turchin, who have been dating for two-and-a-half years, are to tie the knot on December 20, 2014, a representative for the...
Read more on Celebrity Balla
 
Nepal avalanche toll reaches 39
Kathmandu, Oct 18 (IANS) At least 39 climbers died while hiking on a key Nepali route after it was hit by a major snowstorm and avalanches earlier this week, BBC reported Saturday citing officials. Over 350 stranded...
Read more on Politics Balla
 
Jake Gyllenhaal says society is complicit in 'nightcrawling'
Jake Gyllenhaal says almost everybody in society ought to relate to his new movie 'Nightcrawlers'. The eagerly-awaited film concerns those people who monitor police scanners and then race to crime scenes to film eye-...
Read more on Movie Balla
 
India eves look for first win in AFC U-16 qualifiers
Dhaka, Oct 18 (IANS) India will hope to register their first win of the 2015 Asian Football Confederation (AFC) Under-16 Women's Championship qualifiers when they take on hosts Bangladesh in a crucial encounter at the...
Read more on Sport Balla
 
Moyes mulling return to management
London, Oct 18 (IANS) Former Manchester United manager David Moyes said that he is ready to revive his managerial career six months after being sacked by the 'Red Devils'. "I am ready to return. I have enjoyed the...
Read more on Sport Balla
 
Ebola fears loom over Ghana hosting AFCON
Accra (Ghana), Oct 18 (IANS) The Ghana Medical Association (GMA) cautioned the government Saturday against hosting the 2015 African Cup of Nations (AFCON), despite a request by the Confederation of African Football (...
Read more on Sport Balla