The Front Gate

Some larger factories have uniformed guards at the gates. Often the uniforms are nearly perfect replicas of the police. I mention it here because this can lead to confusion or a misunderstanding that the factory is involved with a police incident.

If you do not see any guards or only a single lonely guy guarding the entrance, you can bet that the factory is not paying much attention to security or wants to save money.

Finding waste material near the entrance area it is an indication that factory management is not concerned about cleanliness and tidiness. It can also indicate that they have not many customers visiting. Otherwise, the area would be cleaned up on a regular basis.

The Factory Grounds

You should be also concerned if you see finished goods stacked outside the factory building, especially if the goods are not even covered by a roof. The Southern China costal area is prone to frequent showers and you do not want your goods loaded into a shipping container with a wet outer carton.

After 4 weeks in the container, most of the products will be nothing but garbage. I am not exaggerating. Unfortunately, I have seen many such scenarios, which is why I mention the subject. To be clear, I am not talking of goods in the process of being loaded into a container but about goods that are being stored outside.

It is not just rain that damages unprotected goods. Sunshine bleaches the corrugated cardboard material and high humidity will soften it.

If you find both a lack of security and weather battered goods, you may already have as much information about the factory as you need.

Entering the Factory

Your next impression might be a surprise if you find that the factory is much smaller than expected. You could also find that the factory buildings are in a very bad condition. An indication that the factory lacks funds to modernize.

You can expect the guard to alert management of your arrival and somebody should be sent to pick you up. If that does not happen and they let you stroll around the factory area without anyone’s attention, it is another sign of poor management.

Some factories are very large and you will definitely need assistance to find the management office. The better organized and large factories have a separate reception desk to welcome visitors. You will sign a guest register and be given a visitor’s identification badge.

It should not be normal procedure for visitors to wander around the factory unaccompanied. If somebody visits your home, you would not appreciate finding him or her coming and going from you rooms without your knowledge.

The front desk staff can communicate in English. Normally, the larger the factory, the better the command of English. Once you are registered, the receptionist will contact the management office to send somebody for you.

Remember some factories cover an area exceeding 100,000 square meters. Without assistance you will be lost in no time.

If the factory is really well organized and experienced at receiving visitors frequently, everything will work like a breeze. They may even have a welcome sign on a reader board with your name and your company’s name on it. Something like a small marquee. Take a moment to admire and praise it, which will please your hosts. Taking a photo of it would be even better.

The Showroom or Conference Room

Your next stop will probably be the showroom or conference room, take your time to observe how the office is organized. If there are many empty cubicles, it is an indication that either the factory does not have enough employees or it is lacking in purchase orders.

You can also see whether the employees are playing computer games or chatting online. Hopefully they are really busy with purchase order related work. Of course you are not visiting the factory as their supervisor but it is always good to study as much as you can for your own good.

After a few factory visits this will all become routine for you.

Gaining Competitive Knowledge

Factories keep track of details about their competitors due to the frequent change of engineers and managers. They usually stay in contact with previous colleagues and know exactly what is going on in their old factory long after they have left.

Over the years, you will receive frequent invitations from factory managers that have moved to new factories and want to regain you as a customer. It is often a good chance to obtain better prices as an incentive to buy from them.

You can only determine a factory’s quality and capacity by visiting the new factory and properly evaluating it. Keep in mind, a new factory manager can turn an inferior factory around, but you are better off waiting until that has happened before placing your purchase orders.

Start Planning You Travel Time in China

It can be tempting to invite managers from several factories to meet with you in the comfort of your hotel. However, it makes much more sense to visit your suppliers at their factory. You need to meet the full factory team and survey the operations.

China is a vast country. You will want to visit several factories in the region you are visiting. It is common for people to underestimate the travel time between their hotel and the factories as well as from one factory to another. Here are some general travel times for you to use as you begin planning a trip:

Greater Ningbo Area

After arriving at the Ningbo International Airport you can expect at least another 1 hour by car to reach your first factory. Take this in to consideration so that you do not waste precious time in a car. Further on, I will give you some tips to maximize the use of your travel time. Car travel is generally the only way you can reach factories in this area.

Foshan/Shunde Area

This is another industrial area, which is located in the Southern China Guangdong province. You can reach it conveniently by ferry from Hong Kong. Upon arrival, you still need to ride 30-45 minutes by car to reach your first factory. Knowing that the ferry takes 2 1/4 hours lets you easily calculate that it is impossible to visit more than 2 factories per day if you want to evaluate them thoroughly.

Since travel occupies a lot of your time, it is advisable that you make enquiries with each factory ahead of time. Learn their exact locations and ask for scheduling suggestions. Following their suggestions will save substantial travel time that is better spent in meetings and evaluating the factories. Another tip is for you to ask the factory to arrange for your ground travel including onward travel to the next factory. They are usually happy to accommodate you.

Will the Electricity Be On During Your Visit?

Chinese factories are forced by the government not to use electric power one or two days per week. This government imposed outage rotates between industries and factories during the week (including Saturdays and Sundays) because demand outstrips supply. Heavy penalties are imposed if they break the rules. Most factories have purchased electric power generators to overcome the shortage thereby avoiding production interruptions. Still, be sure the power will be on when you visit or you will not be able to see production operations first hand.

Business Cards are Critical!

They are lightweight and can be used long after your visit to China so bring considerably more than you would normally think is necessary. In China everybody expects you to give him at least one business card and if you are meeting with several people, you may handout a dozen or more at a time.

About Cell Phones

I suggest you check with your cell phone provider at home to see if your phone will work in Hong Kong and China. Give your cell phone number to any supplier that you prearranged to meet.

The call charges to Mainland china are very high and many visitors buy a SIM card from a China Mobile retail outlet upon arrival to reduce phone costs. The call charges in Hong Kong are cheaper but you can also buy a SIM card from one of the local service providers.

You Will Need a Digital Camera

A digital camera is one of the most important tools you will need during your visit. You will have many opportunities to shoot photos of products, production operations, and quality control operations. These will include close-up photos from details which cannot be seen in a catalogue. Do not forget to bring a spare battery with you because you probably will not have a chance to recharge the battery while traveling between factories. You may also need another memory card if you do not have already one of those 2-5 GB cards in your digital camera.

You Need a Notebook Computer

If you have a notebook computer, bring it to every meeting. If you do not have one, consider purchasing one. That purchase will be worth the money you spend for it.

Your notebook computer provides you with the necessary information for your business negotiations, plus allows you to show background information about your company, and the packaging concept for your products. You can also input vital information during your discussions without the need to take hand written notes. At the end of each day you can send this information together with the matching photos to the head office.

Colleagues at home can in that way interact and ask for additional information if something important was missed.

I suggest a large capacity battery for your notebook computer. One that lasts up to 6 hours or more. If that battery type is not available for your model, bring another fully charged battery along.

Your Company’s Catalogue

If you have your own company catalogue, bring a few sets along with you for the meetings with your suppliers. From my experience, it makes a good impression and helps to cement the relationship with your supplier if you hand over one set during the most important meetings. Remember you are your company’s ambassador and want to show your company in the best possible light.

Your Corporate Identity Artwork Concept

Creating your own corporate identity concept is very important. After spending a lot of effort on it at home, it would be a very good idea to bring it along with you to show it to the suppliers during your meetings. It enhances the impression you make and helps suppliers better understand your needs.

Sketches, Drawings, and Photos are Perfect Tools to Inform Suppliers

You should also bring along any sketches, drawings, or photos clarifying what you are looking for from your suppliers. Sometimes suppliers will tell you where you can find products and help save a lot of time.

Your Specifications

What is a specific requirement? A specific requirement could be a more complex sales packaging or an instruction manual in several languages that are often needed for Europe.

For electrical products, the plug is a substantial cost factor. The British BS plugs is more expensive than the US plug.

Quality Requirements

Your quality requirements are a very important cost factor. The requested quality standard is defined by your requested Acceptable Quality Level (AQL) that sets the limits for the satisfactory process average.

License and Royalty Fees

Other important cost factors are license and royalty fees that have to be negotiated with certain suppliers. DVD players/recorders, MP3 Players etc. are examples.

Your Shopping List

To avoid being distracted, you have to prepare your shopping list of the products you want to source. This list should include at least the following details:

• Product description
• Target Fob price in US$
• Quantity of the first shipment
• If possible an estimate of your yearly quantities
• Requested earliest delivery date
• Destination port
• Packaging information of other than standard
• Number of samples needed

The reasons and solutions given by factory management may not be the full story. In fact, the biggest problems may not have been identified to you at all. There could even be a cover-up going on. You want to get these resolved in short time. Visiting the factory to directly apply your skills, digging deeper is often the best answer. This is a good time to bring your own interpreter along. You probably want to talk directly with the factory’s engineers. They often have the best background information and possibly already know the best solution.

Negotiate Terms and Prices for New Large Volume Orders

If you are placing large volume orders, most likely you visited this factory this factory before and know their background.

When you have large volume orders in your hands, you have stronger bargaining powers. Factories like large volume orders for several reasons. For one, they can buy raw material and components at reduced bulk prices. A long production run means less frequent production line changes. Also, tooling costs can be spread over the larger quantities.

Once the goods are engineered and in production, it means less engineering effort is needed. Often, long production runs reduce the frequency that production workers need to be trained how to manufacture new products

Keep this in mind during your negotiations.

In my opinion, this is one of the few opportunities to negotiate better terms and pricing. While still remaining competitive with other factories, the fact is increasing costs for raw materials and components makes negotiating the price for smaller order quantities difficult. Another fact to keep in mind is these same increasing raw material and component costs mean the factory will not place orders with their suppliers until your L/C is received. However, in exchange for the large order they will pass some of their cost savings on to you.

As an importer, you are liable if something happens with your products. If it comes to a legal battle it is essential that you can prove to the court that you took all necessary precautions, including evaluating the factories on regular basis.

It is just as an important task as inspecting goods before shipment and inspecting them again upon arrival at your warehouse.

Ugly, untidy, and dirty showrooms do not reflect well on the supplier’s diligence. However, that impression may deceive you because your supplier may still live up to your expectations.

I have found that at least 50% of most supplier’s showrooms in Hong Kong look like a garbage dump and you might be too scared to work with these suppliers. Rest assured that you can work with these suppliers but you need to take some precautions. If you follow my checklist and receive satisfactory answers from your suppliers, you may still want to give your new supplier a try.

It is all about competence and if you have the impression that your new supplier has enough of it, go ahead and make his day.

Effective Questions for the Supplier

Which questions should you ask during your meetings with each of your suppliers? You want to ask at least the following questions:

• What is your Fob price in US$?
• What is your usual port of loading? They can sometimes offer you a choice of several ports.
• Do they have their own factory, what is the name, and where is it located?
• When was the company established?
• Who are the owners?
• How many production lines do you have?
• How many workers does your factory have?
• What are your main export markets? If the answer is Europe, your next question should be: Which countries there?
• Who are your main customers? Of course you are mainly interested in customers from your country but it would be interesting to know if large companies like Wal*Mart or Carrefour are buying from them.
• What is your delivery time during normal season and peak season?
• Are you subcontracting part of your production and if so which parts?
• Does your factory have their own injection machines?
• Is your factory ISO 9000 approved?
• In the event the quantity from your shopping list is not sufficient: What is your minimum order quantity per product?
• Which laboratory are you using for your approvals?
• What approvals does your company already have?
• Which certificates have been obtained?
• What new products do you have that are not on display?
• When can I see sketches, drawings, or photos of these new products?
• Can you please e-mail me your bank details? You will need this to pay the sample cost when you order product samples

Here is more detail about what should be discussed based on the previous questions:

Delivery Time and Order Backlog

You need to ask the factory management about their delivery time during the low and peak season so that you have information about how long it will take for your goods to ship. This is also important to understanding the lead time needed when placing purchase orders.

Something else that needs to be asked is their current order backlog. This indicates how well the factory is doing. If they do not have many orders, there may be a reason for it, which can be important in your decision making. If the factory won’t talk about low order backlog, there is a chance that their competitor knows which proves one more time how important it is to visit the factories in person.

Port of Loading

Since factories sometimes can use different ports of loading, you need to inquire which one is usually used because the applicable freight charges will apply and you need that information to properly calculate your landed cost. Some ports have only one vessel departing per week and you must know this in advance when planning tightly scheduled shipments.

Closest International Airport

I want to mention that some products can only be shipped by airfreight. Notebook computers and MP3 players are typical examples. The key components of these products are ICs that constantly fluctuate in price. At present, the prices are in constant decline. Buyers need to receive their goods within a short time or they will not be able to make a profit. The price they need to charge will be higher then the price being charged for goods that were air shipped. That makes air shipment unavoidable.

Banking Details

When discussing the payment terms with factory management, ask them for their banking details, which will allow you to do a background check before placing your orders with them.

Payment Terms

Finally, you need to negotiate the payment terms, which are usually by irrevocable letter of credit at sight (L/C). This is usually the safest way to pay the factory and also allows them to obtain loans from their bank to start the production on time.

Never ever let the factory convince you to remit a down payment of let’s say 20 or 30% of the total order value by T/T to enable them to start your production. Ask yourself why are they asking for this? There is only one reason, which is that the factory has no money and obviously no other orders. They want to jumpstart production with your cash. If something goes wrong and the likelihood is rather great something will, you lose your money and never receive a shipment.

If the staff member you are meeting with can answer most of these questions, you can be relatively sure that it is not a trading company. Even if they pretend that they have several factories working for them, they are not likely to know all these details.

I should point out that you should have already disclosed the content of your shopping list before asking all of these questions.

About Your Shopping List

Here is the information your shopping list should include. It needs to include all of the products that you want to source. Your specific requirements may go beyond this basic list:

• Product description
• Target Fob price in US$
• Quantity of the first shipment
• If possible an estimate of your yearly quantities
• Requested earliest delivery date
• Destination port
• Packaging information if other than standard
• Number of samples needed

It is not wise to inform all suppliers about your target price right away. You could end up with prices matching your target price but you may have actually been able to negotiate a lower price.

On the other hand, inform your supplier of your target price if they quote a price that is not even close to what you want to pay.

It is essential to provide your company’s specifications before asking for price quotes. Of course, you can play the hide and seek game by not disclosing your requirements to the supplier. The big disadvantage with this is that you will be drawn into lengthy negotiations later because the supplier will tell you that his price was based on his own standard and everything above that must be added to the originally quoted price. There can be no doubt that the supplier is right.

I believe it is part of fair play to fully disclose your requirements up front. To do anything less may force your supplier to lower the product quality by using cheaper materials in order to obtain the purchase order.

With Whom Should You Negotiate on Your Supplier’s Side?

Talking to the right or wrong person in your supplier’s hierarchy can be the key for successful or failed negotiations.

Typically your negotiations begin with the sales manager. If technical details need to be worked out the production manager and/or one of the senior engineers will be involved.

Meeting with Decision Makers

These managers however cannot make final decisions without consulting with senior management, when the meeting carries a significant importance. Typically these are meetings where the outcome involves a lot of money. It could be a negotiation to resolve a settlement claim or it might involve a large volume purchase order. I can only advise you to go right to the top decision maker. That means you must talk to the company owner. This can be several people if it is a shareholder owned company. You may need to meet with the chairman of the board, the chief executive, or the president.

It may prove difficult to get in touch with the supplier’s decision maker because they are usually shielded by their staff. Knowing the background of your supplier is essential to pinpointing the right person if your supplier has thousands of employees.

It may pay off now, of you have visited that supplier before and already know the company hierarchy.

I have discovered on various occasions that decision makers in China go into hiding and cannot be reached by your company when there is a major settlement claim. This might seem strange but if you do not nail down an appointment with your supplier’s decision maker, you may end up talking to the people that shield him and end up just wasting more time and money.

Have Current Contact Information On Hand

It should not be this way but believe me, even as a permanent Hong Kong resident it has happened to me. I have arrived at a supplier’s office address only to find out they moved to a new location several weeks ago.

Sometimes, managers may be using up a supply of old business cards and forget to let customers know about their new office location. Or maybe it has been a while since you last talked to them and when you call or e-mail to arrange a meeting, they have forgotten you do not know that they moved. This is especially true in cities like Hong Kong or Shanghai where offices frequently move. You need to make sure that you have up to date addresses in your records.

Even more important are the cell phone numbers because this is your primary way of contacting the persons while you are traveling. In large cities, the traffic conditions can at times be terrible and you will want to inform your business partner if you will not make it on time for an appointment.

A Few of Good Travel Tips

A sketch with a Chinese character description of the supplier’s location sometimes works wonders helping your taxi driver find your supplier’s location. You might be able to draw the sketch and have someone at your hotel add the Chinese characters or have the supplier e-mail something similar to you.

If your taxi driver still has trouble finding the supplier’s location, you can call the supplier on your cell phone and ask him to give directions to the taxi driver in the local language. This usually does the trick.

You can always ask your supplier to pick you up from the hotel to avoid this problem but it can be inconvenient and time consuming to wait for the supplier to send a car. Most Chinese factories are usually glad to send a company car to pick you up. However, companies in Hong Kong or Shanghai may not be willing to provide this service.

When visiting suppliers you will want to make plans that best utilize the available time. This is even necessary if you are visiting suppliers in one of the large Chinese cities like Hong Kong, Shenzhen, Guangzhou, and Shanghai. These cities are so vast that you need a realistic plan if are going to get much accomplished.

After you got your first impressions of the factory upon arrival and learned more at the first meeting. Next, your job will be to look at the different production and storage areas in detail to find out if the factory complies with your company’s quality expectations.

Quality Control for Incoming Material and Components

A busy factory will receive materials on a daily basis. These include raw materials, components, packing materials, and anything needed from different vendors to support the production.

Your task is to check whether the factory has established a systematic and effective incoming material/components quality control system.Ask your factory representative to take you to the incoming area to observe the Q.C. staff conducting the incoming inspection.

Rejected Materials and Components

Here is another way to check up on the factory’s incoming Q.C. process. If they try to tell you that they do not have any rejected materials or components, you can be sure that the Q.C. staff is either not being thorough enough or they are lying and they don’t have an incoming Q.C. process. Normally, every delivery will have at least a few rejects.

Visiting the Q.C. Department and Testing Equipment

This department is vital for maintaining a high quality level during production. Do not ever skip a visit to this department in order to save time. The Q.C. department is management’s method for constantly monitoring the production quality of the factory. Here, you really want to find out if you are in good hands or not. Every time goods have to be reworked or remade it costs the factory a substantial amount of money. Only constant monitoring of internal quality standards assures the factory that a major rework or remake will be avoided.

The average factory has a separate room with testing equipment and of one or more engineers to running it. When you enter this room, take note of how well they have organized themselves. You may find anything. It could be a complete mess or well laid out testing room.

Separate Q.C. Rooms for the Customers Inspectors

It is common for customers to send their own inspectors or hire an outside inspection company to perform at least a random final inspection before the goods ship. The factory is expected to provide separate Q.C. rooms for these inspectors.

If the factory does not have separate Q.C. rooms for customer inspectors, you have to refrain from working with them because they certainly do not meet the minimum requirements for quality control.

Visit the Factory’s Mold Shop

Larger factories usually have their own mold shops where different types of molds are made.

I assume that you are not an engineer and therefore maybe not very familiar with mold design and construction. It should be adequate for you to see if the factory has a mold shop at all and learn a little something about the technical equipment they are using. Since product quality depends heavily on the precision of the mold, you should be very concerned if the mold shop is using old and outdated equipment.

Metal Punching Area

Similar to the mold shop, not every factory will have or need this equipment. If they have it, it helps them control another part of their cost equation. If the factory is using as 20 or more of these extremely expensive machines, you can imagine that their volume must be quite high, otherwise they would not have invested the money.

The Injection Molding Department

After you have seen the mold shop and learned how molds for the injection machines are made, you can now see them in operation. Injection machines are also very expensive and some of them are as big as a large truck if very large plastic parts need to be injected. It is important that you understand the factory’s injection molding capacity. Often the injection capacity defines the factory’s total capacity.

Spray Painting Department

Spray painting must be done in a spray booth that can control the emissions of particles and solvents.You may find during your factory visits that some workers in the spray booths are not wearing a protective mask at all.

Solvents such as toluene and xylene are considered to be air toxic, and could cause health problems in humans.

If you don’t want to work with companies using child labor or forced labor, you really should not want to work with factories that do not care about their workers health.

Production and Assembly Lines

This part of the factory tour is preferred by most visitors. There is so much to see including the lot of beautiful girls from all the different provinces in China.

Check if production is arranged in a logical order. Common sense applies here but factories do not always follow common sense.

Workers are not typically allowed to talk to each other when working at the conveyor belt. If they are talking or arguing with each other and nobody intervenes, it is another sign of poor management.

You may come across ongoing production of goods for other companies, even your competitors. It is a good idea to take notes and photos because this information can be important for your sales managers back home.

What have Price and Terms Negotiations to do with Product Quality?

All price quotations in China are calculated on the individual BOM (Bill of Materials) list. This is a document used by the manufacturer or other business to authorize purchases to be made or to request materials be pulled from inventory to fulfill customer’s order.

Bills of materials are of course only one part of a product cost. Other costs as factory operations, labor, and administrative costs all go into the net cost of a product. Finally, the supplier adds their profit margin before quoting their selling price.

When you negotiate prices with your supplier, the BOM plays an essential part in your supplier’s calculation. Actually, the most important part because most of the other costs cannot be changed. The factory cannot significantly reduce the labor costs otherwise workers will flee to other employers. The equipment the factory owns and the cost of energy for the manufacturing relatively set factory operations cost.

That leaves the BOM as the only negotiable cost. Just like most things in the world, this is accomplished by substituting cheaper materials from other vendors or outsourcing part of their production to subcontractors who are likely taking quality short cuts that your supplier does not.

You might point to the profit margin as a good place to trim the price. In reality, the profit margins are so thin that if they were further reduced it would not make much sense to even open the factory doors for business. Certainly, they do not want your purchase order if it means they will lose money on the deal.

Both options that the factory has for reducing costs are bad for your quality requirements.

Sourcing cheaper components or materials usually means inferior parts or materials. Otherwise, the factory would already be using these less expensive components.

The Difference a Switch Can Make

Consider this example of what could happen.

A factory receives a large order for 200K electric hair dryers. They face the situation where the customer’s requested price is too low. They scrutinize the BOM and find an electrical switch purchased from a reputable switch maker can be substituted with a lower cost switch made in-house.

The savings is only US$ 0.05 but when multiplied by the 200K dryers it becomes a US$ 10,000 cost reduction.

Now for the real quality issue. The switch from the specialized switch maker was lab approved and had its own approval certificate. The in-house produced switch does not have its own certificate. Rather the supplier covers it with the existing certificate for the hair dryer.

You may think that an approval is an approval and it is a good way to cut costs. However, if something happens later and the hair dryer starts burning because of a faulty switch, the lack of proper approval will become a big deal.

A component with a stand alone approval is always an advantage but does cost more money.

You can see now the direct relationship between negotiating cost and the effect it can have on quality. The more you squeeze the more likely it becomes that he will reduce the BOM cost by substituting good components or materials with inferior ones.

There is always the option of substituting A-grade components with B-grade or even C-grade ones. It is nearly impossible to discover these changes but the result will be lower performing products. This is especially true of consumer electronics that need ICs, capacitors, and resistors in A-grade quality to perform properly.

If you have a good long-term relationship with a factory, you may have some reassurance that your factory will not use this cost cutting method but there is no guarantee of it.

Hidden Low Prices

Here is a little known fact that will probably surprise you. Insisting on larger than usual payment terms (L/C 90-120 days) will be reflected either in the product price or in lower quality.

The Chinese are usually good negotiators and know ways to persuade you to listen to their arguments. If they insist after several rounds of negotiations that they will lose money by meeting your target price, you should not continue pushing this issue or it will simply become hidden somewhere else.

Look for some form of compromise to avoid getting into trouble with substandard production quality that could cost you much more than accepting a few cents higher Fob price.

Many factory claims in China can be avoided though by a good functioning quality control management. From my more than 25 years working experience in China as a major importer of Chinese products, I would like to share in the following article some vital information with you to save you pain and cost.

There are various reasons for filing a claim against a factory but you will mainly be faced with:

1. Late or incomplete deliveries
2. Major quality issues
3. Copyright violations
4. Patent infringements
5. Non-compliance with laws of the destination countries

Let me give you more information about the likely background of these claims:

1. Late or Incomplete Deliveries claims can easily be avoided if your company exercises the necessary due diligence to monitor the production progress at the factory. If your factory was unable to produce the ordered quantity on time or could not supply part of it on time, you should have known this weeks ahead of time. It should not come as a surprise to you at the last minute. If this happens, it is likely your company’s control systems either are not yet in place or need refinement
2. Major Quality Issues are another claim that could probably have been avoided if your QC department and your inspection company had done their homework correctly. The exceptions are hidden defects that can be only discovered after products reach a certain manufacturing operation (properly operating technical products for instance).
3. Copyrights Violations are the worst case scenario and in general very costly. Since it is not a quality issue there are only a few precautions that you can take but they will not always prevent these claims. Chinese manufacturers have a different understanding of copyrights and from their point of view, everything looks alright. Unfortunately, it is still very common for factories to take famous brand name products and apply marginal changes in the hope that the design will be sufficiently altered to avoid copyright infringements. Most often, the design changes are not sufficient. My only advice to you is to carefully check the copyright or patent in your home country and do not rely on statements made by the factory, regardless of how convincing they may seem. You may want to contact a patent lawyer if you are in doubt. If you have the slightest doubt that your product(s) might violate copyrights, it is best to drop the products so you can enjoy a much better night’s sleep.
4. Patent Infringements are another worse case scenario and can be even more costly than copyright violations. Patent infringements are sometimes very difficult to determine because they are at times only subtle modifications applied that can make a big difference. Trying to bypass existing patents without being an expert would be the same as playing with fire. You will be burned and will lose a lot of money on top of it. It is inevitable that you seek the help of an experienced patent attorney to avoid the many pit falls here. On the other hand, these lawyers are very expensive and you may wonder whether your effort to import a risky product (that’s what bypassing existing patents are about) is worth all your time and money. The key point here again, is that you cannot simply trust what your supplier tells you. He is not familiar with the patent laws in your country and frankly, he simply does not care. That means you are all alone and you are the one that will be held fully responsible if you import a doubtful products.
5. Non-Compliance with the Laws of the Destination Countries is also a serious situation but different from points 3 and 4. You may be lucky and can prove to the authorities that their findings were wrong. If a problem does exist, it is very important that you can prove the problem did not happen through your negligence; meaning that you took all necessary precautions. What makes the case more serious is that you will be dealing with government authorities who are very powerful and can enforce a nationwide sales stop or even a recall of all distributed products. If that happens you will lose a lot of money and even more serious, your reputation as a high quality importer. Usually the government authorities will contact your customers first because that is where they will retrieve testing samples. Since your customers are distributing the non-compliant products, they will be liable. Still, you cannot escape your responsibilities because most retailers have clauses in their buying contracts that pass the liability for damages or claims to purchased products themselves to the importer.

All these claims are usually about huge amounts of money and avoiding them by taking the rights precautions is surely the right thing to do.

If you want to conduct business negotiations in China, you better be absolutely prepared. You are far from home and cannot just run across town to fetch a missing document or your contract if you forgot to bring it along. Of course, you may be able to ask your staff, at home, to send you the missing information by e-mail but you may already have lost your face with your Chinese counterparts because you were ill prepared for the meeting.

Therefore, first make a plan about what subjects must be discussed with each of the companies you are going to visit. After that has been established, you have to prepare a checklist of the documents needed for each meeting. If you want to conduct successful negotiations with favorable results for your company, you had better have everything on hand instead of guessing what else might be needed.

I suggest using a notebook computer during your negotiations. Notebook computers can store all of your previous communication with your supplier along with copies of any documents that might be needed.

Paper Documents

However, during meetings with your suppliers you still may need a paper version of the documents to provide to the participants. It is usually not very convenient to present documents on your computer screen when several people attend your meeting. The completely paperless office is still a future illusion so you need to have hardcopies of the most important documents ready for your negotiations. If more copies are needed, your supplier can make them for you.

Help Your Chinese Partner Prepare

The meeting may only last 2-3 hours total but your preparations will probably need much more time if you want to be successful.

It is also common for your Chinese business partner to request a summary of the intended discussion points in advance. This makes perfectly good sense so they can also prepare for the meeting and can ask for additional information if something seems unclear.

Chinese senior managers seriously dislike being confronted with details they were not aware of and for which they did not prepare themselves. If you wait until the meeting before disclosing key information, the Chinese decision maker will loose his face. The result will be negotiations that go nowhere despite your perfect preparations.

Unfortunately, the preparations were less than perfect if you fail to cover the Chinese side of the equation. Not helping the Chinese prepare for the meeting is a formula for failure.