Sofeast’s head of supply chain management, Kate, shares 7 tips that will help you get better results when you’re sourcing from China (or other countries in Asia, too). She also sheds light on how we approach the process effectively for our customers after doing so for a decade. Read and listen and you’ll either be ready to get started with sourcing new suppliers or power up your existing sourcing game by avoiding more risks and common errors.
Prefer listening to reading?
1. Use platforms to find suppliers.
The most famous of China-sourcing platforms, it’s easy to use and you can find suppliers for almost anything.
Pros: It has many suppliers with international experience and export licenses, English-speaking sales reps, previous experience with foreign customers, an easy-to-use website, and trade insurance programs to provide you with protection if things go wrong.
Cons: A lot of the suppliers are actually trading companies and not manufacturers (you may be able to identify trading companies if they have only a few staff and a room number for the address, rather than a factory).
This is a similar platform to Alibaba, but it tends to focus more on local suppliers. Since it can be cheaper, you can at least do research here and use the lower prices to negotiate with suppliers from Alibaba if you prefer them.
Pros: Since a lot of these suppliers are local and supply domestically, you are likely to find that some are cheaper than on Alibaba.
Cons: Suppliers here are less likely to have international experience and export licenses, or even speak English. So managing the relationship could be more complex.
You can also consider using these sourcing platforms: Global Sources and Made In China.
You might also use (paid) trade insight programs like Panjiva and Import Yeti to research who has been shipping what from where and possibly get an idea of who their suppliers are, too. Or, if you want a free research solution, it’s possible to search on Google or on Baidu (China’s equivalent) as some suppliers will have websites that can be found there.
Finally, exhibitions like the Canton Fair have been back up and running since Covid, so paying a visit and seeing suppliers in the flesh is a popular option. (04:12)
2. Pay attention to these points when selecting a supplier
You can get a feel for whether a supplier will be a good option by checking:
- Year of establishment – companies that are newly established are riskier to work with than those with a fairly long history
- Location in China – central China tends to be cheaper than the key coastal areas, but the quality is also usually worse, so you need to make a tradeoff between quality and cost
- Number of QC staff – if a supplier has a decent number of QC staff they’re more likely to take it seriously, you can also ask to check recent sample quality reports (10:02)
3. Check their certifications
Larger suppliers will have more certifications like ISO 9001, 14001, etc. Holding these is a good sign that they have, for example, a quality management system in place and you can expect better quality products from them. In our experience, they’re usually not fake, but sometimes they have expired. It’s possible to check the validity of certificates online, though, so you should do this.
If you’re purchasing components or products that have certain certifications checking these is really important because otherwise, you could end up with non-compliant products that can’t be sold in your market/s. For example, if a product has RF emissions, and many electronics with WiFi etc will do so, it will need an FCC certification for the USA or CE for the EU and UK. Off-the-shelf components that are pre-certified are often good options for new products due to the convenience of not needing to get them certified yourself, but if you are making a custom component or product don’t forget that the responsibility to get them certified will fall on you. Most suppliers will assist you in getting products certified and will provide samples etc, however, it’s better if you manage the process in case they do something wrong…ultimately you are held responsible for non-compliant products, not them. It’s helpful for many importers to use a 3rd party compliance expert to help get products tested and certified correctly. (12:39)
4. Collect and verify each supplier’s contact info
Now you’re narrowing down your possible suppliers, this information should be collected:
- Location – As already mentioned, location can affect price, quality, etc.
- Their revenue – Sums in the millions are better as they tell you that the supplier is financially stable and can be relied upon in the longer term and is less likely to go bust.
- Confirm that they have an export license – For obvious reasons!
- Find out the percentage of exports they produce VS products for the local market – This speaks for their experience with manufacturing at the required quality level and in compliance with foreign regulations.
- What their main products are – So you can be sure they will not find manufacturing your product new to them and struggle with the project.
- What their technical capabilities are – As above, they need to be experienced in the capabilities required to manufacture your products.
- Who their main customers are – For example, Walmart, Disney, etc, will mean that they’re a good supplier, but you should also know that unless your order quantities are similarly large, these suppliers may not treat your orders with as much urgency or even care as a ‘smaller’ supplier might as their focus is on pleasing their giant customer/s.
Be sure to crosscheck any information provided with what you see online or see on the ground so you can confirm the veracity of any claims and be satisfied that nothing strange is happening. (17:44)
5. Use these tricks to get better quotations
Quotations from Chinese suppliers are usually subject to an MOQ (Minimum Order Quantity). You need to approach them strategically and not just automatically try to bargain down the price; that’s likely to make good suppliers quickly lose interest in dealing with you.
- Alibaba prices can usually be negotiated down by about 10%.
- If your order quantity is low right now, it may help to introduce your business to them and discuss your annual order quantities with potential suppliers to show them that you have potential and explain that you will ramp up orders later in order to get their interest that way.
- Check the average volume requirement by suppliers on Alibaba and try to order that to start with to hook suppliers and get them invested in your project as they spend time on them. Later you can ask for lower MOQs sometimes for marketing or promotional purposes, but only do this when the relationship is established.
- You can start to negotiate on the price earlier if buying off-the-shelf products as the cost is a key point here, but if the supplier is manufacturing a custom product or component for you, making sure that they’re a good fit takes precedence over cost because you need to know that you can trust them with your IP and that they’re capable of manufacturing something new and unique.
- A good quotation will usually include sample costs and lead times, mass production costs and lead times, payment terms, tooling, validity period of the pricing, and incoterms. (21:47)
6. Select the right incoterms for your needs
Incoterms (delivery terms) have an impact on the price you pay for goods from a supplier, so it’s important to know your options. The most popular incoterms from China are:
- EXW- this is the pure ‘factory price’ or ‘unit price’ (usually in RMB) and all logistics are left up to you to arrange and pay for separately. Great for comparing prices from different suppliers, as the costs don’t include various logistics costs that can differ.
- FOB – the seller is responsible for arranging and paying for the logistics and customs clearance in China up to getting the goods onto the ship, the buyer then takes over. This is probably the most popular way for importers to handle the order with their Chinese supplier and we usually recommend it.
- CIF – the seller arranges and pays for internal logistics and customs clearance in China and the shipping to your destination (this is convenient, especially for beginners, but you give up a lot of control and the supplier may select logistics which are not a good fit for your needs). (27:59)
7. Source yourself or use a third party?
It’s worth getting to grips with sourcing from China by trying it yourself as this is a great learning experience. However, it can be difficult and many importers choose to work with 3rd party experts who are already on the ground in Asia. They will usually do all of the background checking work, check local language resources such as government registers, do factory audits, and will be acting only to find suppliers that fit your needs. You might choose this approach to find suitable suppliers, but then manage the relationship yourself later on.
Read this blog post to learn about this decision in more detail: Do You Really Need A Sourcing Agent in China Or Can You Do It Yourself? (32:45)
A sad example of what can go wrong if you’ve sourced suppliers yourself without doing enough due diligence
A customer came to us recently in an unfortunate position. They’d found a Chinese supplier on Alibaba during the Covid times and had agreed to pay 70% of the order cost upfront (which was over US$100,000) due to what he said was the high cost of raw materials, etc, since he was a nice and responsive person (that’s a red flag, as the usual payment term should be a 30/70 split with the balance paid when the goods are shipped).
They switched communications to WhatsApp because it is easy to use and they paid them directly, not through Alibaba (which can provide some protection by keeping the money in escrow for a period of time). The supplier then started telling them that there were delays due to lockdowns, etc, and this dragged on for two years before we got involved! The supplier was still messaging them asking for even more money at this point, claiming that the goods were now ready but since the raw materials supplier was owed money they just needed to pay one more payment and then everything would be released and shipped so they paid another smaller payment of over US$10,000.
They wanted to penalize the supplier for late delivery, but we had to break it to them that this money probably couldn’t be recovered and that the products were very likely never going to be made.
When we investigated the payment it turned out that they’d been requested to pay a different company in Hong Kong than the one they thought they were dealing with which was in China and this meant that legally there was not much recourse or ability to track the payment. We asked to visit the supplier and check on this situation in China, but, of course, they went silent after that and disappeared.
This is a sad example, but it does illustrate the risks that you face when sourcing yourself from China. If you do decide to source your own suppliers, you need to be sure to follow best practices in order to protect yourself from scams. Paying a third-party specialist to do due diligence on Chinese suppliers might only cost hundreds of dollars and prevent you from losing tens or even hundreds of thousands, so it’s a pretty easy decision to make. (35:41)
- Are Suppliers We Find On Alibaba.com And GlobalSources.com Trustworthy?
- Chinese trading companies and their dirty little secrets
- Our guide into the key Incoterms importers might use
- Read this eBook for free: Ultimate Guide To Sourcing From China And Developing Your Suppliers [eBook]
- Read our many posts about disputes with Chinese suppliers and how to handle them