Let’s say you’re buying from China for the first time. Finding trustworthy Chinese suppliers will be near the top of your wishlist, as everyone has heard the horror stories of Chinese suppliers behaving badly.
First, the bad news…
There is never absolute trust with any new supplier, and even less in China.
So, how can you find trustworthy Chinese suppliers? Here’s some advice…
Doing your due diligence is a must
For importers sourcing trustworthy Chinese suppliers the steps to basic due diligence are often as follows:
- Legal Records Check (we charge 99 USD per company) – this is used as a first activity when sourcing for screening out obvious misfits (for example those who actually specialize in another type of product or trading companies), and dubious ones (for example those involved in multiple lawsuits, or formed very recently).
Once you’ve shortlisted a few promising manufacturers, do this check on them.
- Initial Factory Evaluation (we charge from 279 USD per factory) – utilize this on-site audit to confirm what in-house processes the manufacturer has in-house and that they have at least a semi-functional and adequate quality system.
This provides you with peace of mind that they’re actually capable of producing your order.
Start by checking company suitability with a legal records check
Hazards await when selecting a supplier if you end up working with an unsuitable company.
- They may be a trading company posing as a manufacturer
- They may be unreliable and have gotten into legal trouble or debt
- They may be a scammer
First-time buyers often fall for trading companies as I wrote here. This is where a company supplies you even though they are not the manufacturer. While it may turn out OK, there are numerous reasons why dealing with them is risky:
- You are not in control of your supply chain as you may/do not know who actually manufactures the product
- It could be very unclear if the product is compliant with your market’s safety regulations, since you may not know where the components come from etc.
- You do not know if the manufacturer adheres to your quality standard
- The trading company is adding their own margin onto the product cost, likely costing you more
- They may disappear if the project seems to be unprofitable and they’re often just a small office with a handful of people so are hard to track down
A manufacturer who seems great, but has legal judgements against them or is in debt is a risk. What if they continue to flout the law and misuse your IP or take your money and run? How about if they run out of cash and disappear? Where would that leave you?
Legal records will show some financial information and legal judgements to help you avoid trouble.
Manufacturers with no adequate quality system in place (to stabilize their operations and provide assurance that they will deliver what they promise) are also highly unreliable. If 1 or 2 key people leave or are sick, the whole train may go off the rails!
In some cases, a company pretends to be a manufacturer but they have bad intentions, such as getting you to wire a deposit payment for them to start production and then running away with it never to be seen again.
A legal records check will confirm if the company you’ve contacted is who they say they are and the nature of their legally-registered business.
Use the initial factory evaluation to weed out unreliable manufacturers
Chinese people love to say yes and dislike saying no, for fear of disappointing customers. This could be costly if a manufacturer agrees to make your products but actually doesn’t have the facilities or expertise to do so.
This could lead to delays, quality and reliability issues, or, at worst, safety issues that endanger end-users.
On the other hand, if they lack equipment or expertise they may subcontract to other manufacturers who can do the job, possibly without your authorization. Again, this leaves you with no control over your supply chain as you are now working with manufacturers you may not even know who may have no knowledge of your quality standard or compliance requirements.
Is an LRC and initial factory evaluation enough to trust the supplier and go ahead with them?
In some cases, it may be. But our advice is to complete these actions at the same time or just after you do that initial due diligence work, too:
- Negotiations with the potential supplier(s) to ensure agreement on the important terms. At the same time, we always advise signing a legally enforceable manufacturing agreement with the supplier.
- Reviewing samples (we charge from 99USD for a simple inspection of up to 3 samples of 1 type) from the supplier. This helps confirm that the supplier is able to produce your products with the correct aesthetics, functionality, quality, etc.
After deciding to go ahead with production what else can be done for protection?
If you finally decide to go ahead with a particular supplier, the products need to be inspected, at least once before shipment (typically, once all the products are completed).
A Final Random Inspection or FRI (we do this on-site from 299USD per man-day) is a typical product inspection done by most importers once production has been completed, but before shipping.
If the inspection is passed and you see no issues on the photos of the inspection report, you then authorize the supplier to send the goods to you and send the remaining balance amount of the payment to them.
Remember, when selecting your shipping method and agreeing on it with the supplier, don’t forget to select suitable incoterms for your own control and security.
Some tips to remember
Start off with a relatively simple product for your first order. Complex products always have more that can go wrong, that’s just the way of things with new product development and manufacturing. Over time, once you have gotten into a good rhythm with a supplier who has proven themselves to be trustworthy, you can evolve your product types to be more varied and complex.
New importers, especially SMEs and entrepreneurs, probably can’t afford to spend a lot on due diligence, creating contracts, etc. In that case, it may make sense for you to purchase a smaller batch (based on the supplier’s minimum order quantity) first, have it inspected in China, and receive it in your own country.
If you find that there are quality issues and the supplier refuses to re-work the goods, hopefully, you haven’t lost much money. If all is good, go through that process again, and skip the quality inspection if the amount is low enough to justify the risk.
Are there any resources first-time buyers from China can read?
If you have no experience buying products in China, it is a steep learning curve and we can’t explain it all in one blog post.
However, we’ve created quite a few resources that might be useful to get you started:
- The ultimate guide to souring from China and developing your suppliers [eBook]
- Mini-series of podcast episodes about vetting Chinese suppliers and the best practices you need to follow.
- Quality assurance in China and Vietnam for beginners [eBook]
- IP protection in China when developing and manufacturing a new product [Guide]
- How to find a manufacturer in China [eBook]
If the whole process seems daunting and complex, that’s because there are so many ways things might go wrong. The process of finding a Chinese supplier and buying from them is not as easy as buying on Amazon – in fact it is more complex by several multiples.
It’s normal to feel worried about buying from China, but if you do your own due diligence, there’s no reason why you can’t find trustworthy Chinese suppliers and build mutually beneficial relationships.
Let us know if you have any questions or need help by leaving a comment or contacting us.