In my previous job (in a small trading company based in Hong Kong), I quickly concluded that it was better to deal directly with a retailer, rather than a wholesaler who sells to retailers. With few exceptions, retailers are less sensitive to price and impose less constraints. The trick was finding retailers of a certain size, and weed out the “I have 2 boutiques and I’d like to buy direct from China” crowd.
The same goes for factories: it is better for them to deal directly with an importer (and even better with a large retailer) than selling though a trading agent.
The problem of intermediaries is that they constitute one more layer–more communication mistakes and lower margin for each participant in the supply chain. I will be quick to admit that some local agents can create a lot of value for their customers, though. (see an earlier post: Trading companies and efficiency)
When I started doing inspections, I thought it was great to focus only on the products to check, and forget about the structure of the supply chain. We inspect the result of a process by following an objective procedure; there is no need to second-guess everything. And it is a great observation point to have a glance at how different importers and different suppliers are organized.
However, I am noticing that it is easier to check the shipments of factories exporting directly to an importer. When the supply chain is indirect, we run a higher probability of being in an uncomfortable situation.
Local intermediaries strongly resent third-party inspections–on average, even more so than the factories. I see three reasons for this:
- Trading companies argue they already ensure a level of quality (they often send an inspector to factories). But, in my experience, this point should not be given too much importance. It is the rare Chinese supplier who will tell his customer about serious quality problems… They are afraid of discounts, or even an order cancellation.
- They usually don’t fully control the manufacturer, and QC inspections can sometimes be used by a factory to ask for price increases or other last-minute tactics.
- They generally don’t like us (and, they suspect, our clients as well) to know which factory made the goods.
What do Chinese trading agents do to avoid inspections?
The most frequent reaction is trying to discredit the QC firm by telling tales about the inspectors’ behavior. It is pretty difficult for an importer located 10,000km away to reach a conclusion.
Actually it can also be quite difficult for a Chinese supervisor who is wondering if an inspector really got bribed. Third-party quality control in China is not an easy job.
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Related post: Complex supply chains in China