Risks for small importers in china
Posted by Renaud Anjoran on Fri, Dec 10, 2010
At Sofeast we mostly work with small importers with their China production. They have to manage certain types of risks that larger buyers just don't have to worry about.
(In this article, I am assuming the Chinese factory employs at least 500 workers and deals directly with foreign buyers)
Risk No.1: insufficient production followup
If your orders are below 10,000 USD, it is a bit difficult to justify an in-process inspection AND a final random inspection... Which means you will probably check quality only after all is finished (if at all).
Therefore you will run into very serious problems from time to time--for example, you will discover that a whole batch is unsellable and cannot be repaired.
Risk No.2: undisclosed subcontracting
It is VERY common for a Chinese manufacturer to subcontact certain orders in smaller factories with a lighter cost structure. The objective is to face production peaks (when their capacity is fully booked), but also to reduce their costs.
Most quality disasters happen in such situations. You might signal to your supplier that it is forbidden, but they will probably do it sometimes anyway.
Risk No.3: impressive factory visits
I have been contacted several times by small importers who told me "this supplier will be no problem. You can do a quick quality check, but it should be a formality. I have visited their factory, and their organization is top notch."
And guess what? In most cases, quality was less than desirable. Either the "superb factory" subcontracted in a cheap workshop, or their quality system was simply not as foolproof as it seemed to the untrained eye.
Risk No. 4: last-minute price increases
You have heard about the short-term view of Chinese suppliers, and of their cat-and-mouse games? Well, it is not only true of small suppliers. Larger manufacturers also play games.
Expect price increases without any economic justification... But timed so that you have no choice but to agree.
Risk No.5: inflexible suppliers
If your orders represent less than 5% of a factory's annual capacity, you are a distraction in their eyes. They won't bend over backwards to satisfy your needs.
Actually they will make it a point to show you that THEY have all the power in the relationship. Even for seemingly very minor issues, such as refusing a certain packing method because "it will confuse our workers and they might make mistakes".
Some clients asked me if that was the sign that the supplier was getting prepared to screw them. My response is that it is a perfectly standard behavior, coming from a large Chinese manufacturer. Nothing particular to worry about.
Risk No.6: turning to smaller manufacturers
Many small importers come to the conclusion that they must avoid large organizations that are too expensive and don't care about them. They start looking for small workshops, under 50 workers.
What they should realize is that they will need to spend a lot of hand-holding and monitoring time (and expenses). All the savings coming from lower prices have to be invested in problem prevention. It can be worth the hassle, but be prepared for a wild ride!
Anybody had similar experiences?