I read several times that it is easier to manage an employee than an external service provider. There are cases where this is wrong, though.

Thousands of small to midsize importers pay a sole employee in China or in Hong Kong, to work outside of any company structure. The objective is to make communication easier with the factories, to source new suppliers, and to conduct product inspections.

What types of problems does it create?

First, it is illegal to hire a Chinese from the mainland if you don’t have a local company. And a contract between your company and this person will not protect you. For more details, see Do I Really Need A Chinese Company? on the China Law Blog.

Second, it is often more expensive that it seems. I already wrote about the hidden commissions pocketed by agents and employees. And let’s not forget how factories can use social pressure to avoid truthful reporting on the part of Chinese nationals they are often in contact with.

Third, it might jeopardize the whole sourcing operation. Sometimes these sole employees decide to set up their own business inside their employer’s business, not only to make more money but also to become indispensable. In a recent case, an importer’s purchasing department (in the US) found out that their employee had turned himself into an intermediary. He had started re-issuing the purchase orders to the factories, he was making a margin (on top of his salary) and he was their only point of contact!

Does it always turn out that bad?

To be honest, I have seen situations where a Chinese “employee” does a nice job for many years. For example, one of my clients from Latin America has been employing a Chinese lady for at least 4 years (that’s when we started doing inspections for them), and I admire how dedicated she is to her job.

There are a few lessons to draw from this example:

• Her boss is in contact with her nearly every working day on Skype, and he closely follows what she does. I bet he is in CC of all the emails between his China rep and his suppliers.
• Some people from the head office come regularly to China, especially during trade shows.
• She does not ever do quality control (we do), even though she often accompanies the inspector during his work.