Our clients sometimes come to us with problems and disputes with Chinese suppliers. We provide advice for them and others in a similar situation and bring awareness to common problems so they can be avoided in the first place where possible.
Here we’ll give a taste of the top 10 cases from the past years that are worth revisiting and the advice available, as well as the links for you to read detailed advice for each…
1. If your supplier refuses to ship the goods you paid for.
Paying in advance for your products and never receiving them is a frightening situation to kick off and one that most importers worry about. In this case, our customer had paid a large downpayment for their products to be manufactured by a Chinese supplier, but after over a year, the supplier was still making excuses and not shipping anything and eventually stopped responding.
The supplier told us that the goods were ready but no inspection was possible until the customer had paid more to help them settle a debt to their raw materials supplier as then access would be allowed. As we could not confirm the situation on the ground and the story sounded suspicious there was no choice but to advise the customer to take legal action in China to attempt to recover some kind of costs.
Some mistakes were made leading to this situation:
- The customer paid 70% upfront as a downpayment – this is too high.
- They paid into the supplier’s Hong Kong bank account which may not even be connected to the company in China.
- They did not have a signed manufacturing contract with the supplier outlining responsibilities and expectations.
We provide the full story in more detail and some important advice on how YOU can avoid the same fate and protect yourself here on sofeast.com.
2. If your manufacturer tries to force you to accept poor quality that you’re uncomfortable with…
Sometimes your Chinese supplier will try to strongarm you into accepting products that fall below your stated quality standard. In this case, when the quality of the products was found to be well below par with more than 10% being defective, the manufacturer came up with a poor excuse to ‘stop production entirely.’ This was basically a power move to force the worried customer, who really needed the products quickly to fulfill their own orders, to accept them regardless.
We provide some tips on avoiding this scenario, such as using an enforceable manufacturing contract, more clearly defining the quality standard, negotiating better payment terms, and more.
Read the blog post in full here.
3. What if the supplier has failed to prepare export packaging of your products for your scheduled quality inspection?
In an ideal world, if your supplier knows that your quality inspectors are coming in to inspect the packaged goods that are ready for shipping, they will prepare the pallets ahead of time so they’re, quite literally, ship-shape. However, if this doesn’t happen, it means that you will not see the state the packages are in and be able to confirm that they will provide appropriate protection (especially as you need to see the plastic wrapping, straps, etc).
We also cover these questions:
- If the supplier has not conducted package drop tests to confirm packaging reliability
- If and how to share information from your product inspection report to help them improve
- How to handle quality disputes with the supplier? (for rework and/or refund)
Explore how to handle disputes with Chinese manufacturers like this in more detail here.
4. When your supplier has disappeared with your tooling and/or inventory.
Unfortunately, even suppliers you have had a previously good and long-standing relationship with can go rogue. In this case, such a supplier has simply ‘disappeared’ with the tooling and inventory of a customer, and this could be valued in tens of thousands of dollars!
This is a tough position, but you can do investigation work on the ground in China:
- Visiting their facility to check if they’re there or have moved, and if so, where they are now
- Desk-work to investigate their business
The more information you have about your suppliers, such as legal company documents, owner and key staff names, etc, the more likely it will be that they can be tracked down and you can start the process to recover something.
Read about the scenario here.
5. How to handle a supplier who won’t provide important supply chain information.
In this case, the customer needed to apply for NSF certification for drinks machines which was a necessary step to being able to sell them on their market. To do so they required information about the product’s components for the regulatory body to be able to verify that they did not contain materials that could be dangerous for food safety.
The problem was that the supplier wasn’t prepared to give any sub-supplier information, as they considered their supplier network to be confidential business information (this reluctance can also sometimes be due to fear of customers going directly to their suppliers and cutting them out) and was not bound to provide it in a contract, so, therefore, the customer couldn’t get the product certified.
If the supplier won’t budge, what then? It may be necessary to go for the nuclear option and switch suppliers, which we gave guidance on.
Learn more here.
6. You catch your supplier selling your products as their own!
The worst nightmare of many an importer, this customer was sent a marketing email from their supplier and saw, to their shock, their product there for all to purchase.
The likelihood of this happening depends on your manufacturing relationship and how well you protect yourself in advance, and we explain that it’s riskier if you are just white-labelling the supplier’s products and don’t have a manufacturing contract in place that makes it exclusive. We also share tips on how to react to this unfortunate situation without upsetting the apple cart if you want to maintain the relationship and how to source new suppliers who are less risky if you choose to do so.
Read the blog post in full here.
7. When your ‘factory’ turns out to be a trading company…
Trading companies have often pretended to be manufacturers over the years and this can trick unsuspecting importers into getting a raw deal. Instead of going direct, you lose so much control:
- You’re paying a middleman an excess for the same products.
- They may not be as informed about your products and needs as a real manufacturer to get them made to your requirements.
- They may be unwilling to provide supply chain information for fear of outing themselves, giving you the contacts to cut them off, or perhaps don’t even know the sub-suppliers of their own suppliers.
- They commonly select the cheapest option in order to increase their profit to the detriment of your quality.
- …and more dangers.
All-in-all, shaky ground for the importer.
This post provides you with tips on how to identify a trading company so you don’t fall into the same trap.
8. Coping with an unexpected price increase from suppliers.
Once they have you ‘on the hook’ some suppliers feel comfortable enough that you can’t leave in the middle of developing and manufacturing your product that you will be forced to accept a sudden (and sometimes unreasonably high) price increase per unit. This is because, after months or years of effort spent to get to the product launch, many importers are understandably fearful of pulling the plug and sourcing a suitable new supplier from scratch.
Is the price rise actually warranted? Sometimes it is due to material and component cost increases, so this needs to be checked. If not, there are ways to put pressure on the supplier to justify their request which we show you and we also illustrate some of the common reasons why this scenario could occur so you can be wary in future.
Have a look at the story and our tips here.
9. Your current supplier blocks the transfer of your mold tooling to a new supplier.
It’s incredibly common for today’s products to require a custom enclosure or plastic parts, and this means that you will probably have invested a lot of money into the plastic injection mold tooling your supplier uses to produce them. Let’s say that you’re fed up with your old supplier, perhaps because they struggle to reach your quality expectations, and are moving your business to a new supplier. As well as your business leaving, you also need to get the molds out of their factory and on the road.
But as soon as you request the mold tooling your old supplier knows that the game is up, and this is when they can play games to try to force you into paying something.
This scenario requires finesse and we’ll show you:
- How to break the news to your old supplier depending on the nature of your relationship with them
- What you need to do if the supplier does agree to release your tooling
- Why a third party on the ground in China can be of great value to manage the process and insulate your old supplier from the new one
Dive into the details here.
10. Worries about keeping sensitive product information secure.
A common worry is that after you share your product’s IP with a Chinese supplier it will end up in the wrong hands or they’ll use themselves to manufacture their own version of your product and become a competitor!
There are ways to keep sensitive product information confidential, both non-legal and legal:
- Non-legal: You take steps to reduce the amount of information shared with suppliers, such as giving them incomplete information but enough for them to do their jobs, and avoiding sending sensitive info to multiple suppliers during the sourcing process.
- Legal: Potentially requiring each component supplier to sign a non-disclosure, non-use, and non-circumvention (NNN) agreement.
Read the blog post in full here.
This is just a selection of 10 situations that importers commonly face, and our advice for overcoming them or at least reducing your risks if you find yourself in a similar one.
To read even more, you can see 20+ examples of disputes with Chinese suppliers on Sofeast’s blog. If you are struggling with a problematic supplier right now, please contact us and let us know what’s happening, we will be pleased to offer you some advice in the same way that we did these customers.