Chapter 4 – Finding Suitable Suppliers in China

Identifying suitable suppliers in China is not as easy as it might seem to a first time importer because there are thousands of them and you cannot visit them all. First of all, you must filter down to those suppliers that may have products you want to import.

How to Find Products and Suppliers

Several high performance search engines can categorize search results by either suppliers or products. I have had my best experience with these search engines:

Global Sources
Global Market
Made-in China
Hong Kong Trade Development Council

Alibaba is by far the largest. These companies not only provide you with search engines but they are also involved in arranging exhibitions at home and overseas. They also publish monthly magazines that you should subscribe to after you find your market niche and know exactly what you are looking for.

Free sample of Global Sources monthly magazine with 13 titles to choose from, click here request a free sample.

Smart China Sourcing is another site, providing information to buyers new to importing from China, to help them learn how, while sharing interesting stories and information

They provide other comprehensive services that you can check out by visiting their home pages.

Using their search engines will give you a wealth of information about many suppliers and their products. Typically, you will find product photos and descriptions. You can learn something about the companies through short articles and photos. Some even have videos of the factory and/or their showroom. Depending on which search engine you use, you can learn how long they have been in business, how many employees they have, and the dollar value of their annual exports.

An important feature provided to you is contact information to approach the supplier without having to guess to whom you should send your inquiry e-mail.

The verified suppliers on Global Sources are physically visited three times to confirm they are real companies and export-capable, which will provide you with an extra assurance for your sourcing activities.

At this stage, you may not be aware that many of the companies (mostly the better organized ones) are in fact not manufacturers, but rather they are trading companies or agents. This is not necessarily bad if you are new to importing because they can provide services to you that the factory would be unwilling to provide.

Purchasing Volume and Trading Companies

For Chinese manufacturers it is all about buying power and volume. Some big factories are reluctant to cooperate with small volume importers. That is where the trading companies come in because they purchase high volumes of products for a larger number of customers as well as being familiar with most of the factories in their area.

If you can meet the factory’s minimum order requirement, I suggest you buy directly from the factory simply because it will be cheaper. Additionally, in the event of a claim, it is often easier to deal with the factory directly than through a middleman.

Since you will not be able to distinguish between a manufacturer and a trading company, you must ask them when you write to them the first time. Still, you may not always receive a completely accurate answer.

Communication with Factories has Improved

Today, communication with the factories is much easier than 10 years ago. Most factories now employ marketing or sales managers that can communicate reasonable well in business English.

After you have browsed the sourcing search engines and narrowed your selection down to a handful of suppliers, you will open communications with them by making price inquiries, asking about minimum order quantities, and gathering information about any new developments they have in their pipeline.

At this point, you will begin to find out which suppliers are more responsive and show a better understanding of your needs. If they do not reply as expected at this early stage, can you really expect they will reply quickly later on after you have placed your orders with them? Worse yet, will they respond if you have a problem they need to solve?

Generally, you will find most suppliers respond promptly. Some companies are now using Skype or MSN Messenger as a more personal means for communicating.

Remember that building up a good personal relationship with your Chinese suppliers and their staffs is essential. If you manage that part successfully, you will benefit when negotiating prices or trying to obtain help solving any problems.

During early communication with selected suppliers, you should inquire about the company’s background, e.g. ownership, how many employees, and their main export countries. If a factory is mainly producing goods for countries known to accept lower quality products, they may not be able to comply with the stricter requirements of EC countries, the United States, and Canada.

Questions to Ask Early

The following questions can get you started determining if the supplier is the right partner for your company:

  • What is your FOB price in US$?
  • What is your usual port of loading? They can sometimes offer you the choice of several ports.
  • Do you have your own factory, what is the name and where is it located?
  • When was your company established?
  • Who are the owner(s)?
  • How many production lines do you have?
  • How many workers does your factory employ?
  • What are your main export markets?
    • If the answer is Europe, your next question should be: Which countries there?
  • What are your main customer companies? 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 its own plastic injection machines?
  • Is metal punching done in-house?
  • Is your factory ISO 9000 approved?
  • In the event the quantity from your order is not sufficient: What is your minimum order quantity per product?
  • Which approvals does your company already have?
  • Which certificates have been obtained?
  • Which laboratory are you using for your approvals?
  • What new products do you have that are not shown in your catalog or website?
  • 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 for the sample charges

Within China, you will find factories providing products to three markets:

Serving the Purely Domestic Market

As the name implies, they service the Chinese market only. These factories may have some very modern equipment and talented people. They may also have new buildings and a lot of capital invested in their operations. My experience is that these companies are aggressive in sales and have decent facilities and equipment but do not have the skills or experience to work with international clients.

Working with these factories can be both very rewarding and very frustrating. Usually they are excited about foreign business. They are willing to learn and they go out of their way to be good hosts.

The problem is that they often do not know what they do not know about international standards. They think they know: “Foreign clients are going to be stricter than domestic clients.” But when it comes down to it, 9 times out of 10 they either cannot or will not meet the standards that are expected. Whether it comes from unexpected cost overruns or simply the inability to achieve the necessary quality standards, most orders with these companies end up in disappointment. They try. They really want to do it. They have the lowest price. They may have equipment every bit as good as the biggest players in the industry. They are often really nice guys. But you can’t sell bad quality products no matter how nice the people making them are.

In other words if you encounter one of these companies, by all means avoid them because your reputation as an importer of good quality products will be at stake.

Serving Mostly the Domestic and Partially International Markets

The difference between these companies and the purely domestic factories is experience and clientele. They can be just as small, just as young in the industry, and have equally few truly talented engineers. However, for whatever reason they have experience working with international clientele, usually via a Hong Kong trading company.

What does a little more experience mean to you? It means your cost will be a bit higher. But it also means that your higher quality standards will be mostly understood and expected. Most importantly, it means that the skill level necessary to achieve your quality standards should already be in place.

If you are looking for the “bargain” in China, this is it.

These companies have the skill but not the market positioning. They know they can compete internationally, but they do not have the exposure and are still hungry for bigger clients and more money.

Usually these companies will have some sort of “international” sales department. This usually consists of one of the owner’s relatives that has graduated from college or a non-related English major. This is both good and bad. It is good because you have someone to help you out, someone to talk to inside the factory. But chances are the English major was hired specifically because they have an English degree and may not have a clue about whatever you have produced or even how most of the factory works (or even be able to speak much English).

Other benefits of working with these companies include: they will most certainly have an export license. They should have connections with other factories that provide supplemental products (packaging, printing etc.) that only domestic factories often do not have.

One of the biggest problems you may face from such factories are IP (Intellectual Property) violations. They are still basically working on a Chinese domestic price structure but they are doing QC at a more international level. They have just not done the price analysis to fully understand the direct cost impact.

So, if you have major issues or great-selling products, these companies are the ones that are going to be willing to sell you out, literally. They see what they are missing out on with international retail pricing. They can do the market research (or at least Google searches) and get a pretty good idea of what you’re making on the product they’re manufacturing. They will soon be selling your product to anyone and everyone willing to pay a higher price.

You should never work with such factories if you do not have someone representing your company in China. It is simply too risky especially if you are relatively new to importing.

Serving the Purely International Market

The last type of factory is the kind you will find on the higher-end sourcing websites mentioned earlier.

Their business is completely export oriented. They are fully or at least half foreign owned. Many have a large client with a major ownership stake. Or they may be partially or fully (Chinese) state owned. And while ownership may sound insignificant if you have never worked in China before, those who have worked here (like me) know that this often does make a difference.

This “foreign” ownership, even if it is some Chinese owners from Hong Kong, Taiwan, Singapore, or Malaysia, is different from purely domestic ownership in a number of important aspects.

First, even if they do not actually do business like you are used to in the West; they understand and have had experience with international standards in the past. They will at least have a dose of western style education to boot.

Second, they most likely have an overseas office and may have a factory in another location; which means they are easier to track down if there are problems.

Interestingly most foreigners doing business here seem to support this idea. Just the fact that ownership is not local means that there is a different attitude in the business relationship (varying degrees from factory to factory, of course). Conversely, most Chinese I have talked with have the exact opposite sentiment. I don’t think I’ve ever heard a good word from a Mainlander about an owner or boss from Taiwan, Hong Kong, or Singapore.

I have also worked with a couple of State Owned Enterprises (SOE’s) that are in the export business. While they are typically all relatively large, and have multiple “sub” companies, their quality management, level of debt, professionalism, international experience and clientele couldn’t be more different compared to those serving the domestic market.

Some of them have thousands of employees and at least a hundred (I am not exaggerating) smaller companies and factories under their corporate umbrella. Their administration people are experienced in doing business with various customers from Western Europe, USA, South America, the Middle East, and even some in Eastern Europe.

They have their own research and development department and proudly show off the products that they had invented themselves and sold to clients in the West. They also have the latest equipment, western trained MBA’s, and expect their customers to have both extensive and strict QC requirements throughout production operations.

Before you start thinking, “See, I knew it! If you just find the right factory you can get the same level of service and quality as you’d get in the west”, you still need to do your own DD (Due Diligence) on a factory, even the large ones with a good reputation.

You can also employ a local based outside company for the Due Diligence. I will provide you details about companies that can help in one of the later chapters of this eBook.

What Does DD (Due Diligence) Mean?

Due Diligence in Supplier Quality (also known as due care) is the effort made by a SQE professional to validate conformance of products provided by the seller to the purchaser. Failure to make this effort may be considered negligence.

Once you have performed DD on a factory you may just be able to let them do their work and have relatively positive results. But just because the factory looks the same or better than other factories and just because they have MBA’s working in the glass and steel office building does not mean that you can e-mail a P/O to them and forget about it until the merchandise shows up at your warehouse.

You still need to do QC either yourself or by a company you appoint.

The lesson here is that whatever factory you finally choose; you are responsible for the factory that you work with. You have the choice and you need to do the necessary DD, before you pay any money, to ensure that you completely understand what you are getting involved with.

So how do you pick a “good one”?

First, I suggest that you find through recommendations (not just a website) at least 3-5 suppliers that can potentially manufacture your specific products or are already doing so. Talk with them (online) and get as much information as you can from them and from anyone who knows them.

After you have cut the numbers down to maybe 3 factories, plan to visit them either yourself or send an experienced company that you have confidence in.

If you can afford to visit new suppliers yourself, do it because you learn something new from every visit and gain the ability to tell your customers at home that you have personally visited and selected each of your suppliers in China.

You will find more details and specific information about factory visits in one of my other eBooks for successful importers:  How to make Chinese Factory Visits More Successful.

If possible, get product samples from each supplier on your short list. Compare prices, production times, sample quality, excuses for problems, and your personal experience visiting the three. When you are confident, place the order with one, but let them know that if the first order does not go well, you have two other options ready to go.

You should also keep in mind that sometimes the “best factory” is not the best to work with. If you can get what you want from the second best factory and they are easier to communicate with, by all means work with them instead.

Your brand name or logo should always be included in all of your communications in order to present the best image of your company. When you are new to the import industry, you need to stand out from others. Some of these factories receive hundreds of inquiries every week from many different importers. The best companies often have the luxury of deciding whom they want to work with.

Table of Contents