Co-blogger Steve Dickinson and I had a wonderful dinner the other night with Renaud Anjoran. Renaud Anjoran is the founder of Sofeast, a quality assurance firm that assists small- and-medium importers with China quality control. Renaud has been based in Hong Kong and Shenzhen since 2006. He writes the Quality Inspection Tips blog, of which I have been a huge fan for a long time. See e.g.,  the following posts, where I extensively cite from one of Reanud’s posts:

During our dinner, we spent a lot of time talking of how in buying product from China, “everything is tied together.” In other words, a company that is buying product from China is “only as good as” its weakest link among supplier selection, payment terms and penalties, quality control, communication and contract. Therefore, to succeed, one must have an integrated strategy in place from the start. At the end of the dinner, I asked Renaud to write a guest post on the things on which he had been talking.

Here is Renaud’s guest post:

If you import product from China, there are five basic steps you should be taking to maximize your chance of receiving the right products at the right quality. A shipment of defective or dangerous products can almost never be returned to China and your supplier is not likely to re-do your products for “free” either. Taking these five steps will save you time and money.

1. Find a Suitable Supplier.

Many importers find a nice sample at a trade show, get a good quotation from the company believed to have manufactured the sample and then think their supplier search has ended. It is very risky to choose your supplier in this way. Online directories (e.g. Alibaba) and trade shows are only a starting point. Suppliers pay to be listed or to exhibit, and they are not rigorously screened.

If your contact claims to own a factory, you can run a background check on his company to confirm this claim. Then you should go and see the factory or order a capacity audit (around USD$1,000). Try to get some customer references and call them. Make sure the factory is familiar with your market’s regulatory standards.

If your orders are small, it is usually best to avoid very large manufacturers because they will probably quote high prices and not care about your orders. However, smaller factories usually need closer monitoring, especially on the first production run. Be forewarned: showing a nice factory and then subcontracting production to a smaller workshop is very common and the source of many quality problems. Your contract with your supplier should prohibit subcontracting.

2. Clearly Define Your Expected Product.

Some buyers approve a pre-production sample and a pro forma invoice and then wire the deposit. This is not enough. What about your own country’s safety standards? What about your product’s labeling? Will the packaging be strong enough to protect your goods during freight? These are just some of the many things on which you and your supplier should reach written agreement before money changes hands.

I recently worked with an American importer who had told its Chinese supplier that “the quality standard should be the same as that of your other US customers.” Of course when this American importer started experiencing problems, the Chinese supplier replied by claiming that “our other US customers never complain about this, so it is not a problem.”

The key is to write your product expectations into a detailed specification sheet that leaves no room to interpretation. Your methods for measuring and testing these specifications, along with the tolerances, should also be included in this document. And your contract should set forth specific dollar penalties if the specifications are not met.

If you are developing a new product with a Chinese manufacturer, you should be sure to document the resulting product’s characteristics and production processes as you cannot count on your supplier to give you this information if you later choose to switch to another factory.

3. Negotiate Reasonable Payment Terms.

The most common payment method is T/T (Bank Transfer). The standard terms are a 30% deposit before the components are purchased with the remaining 70% to be paid after the supplier faxes the bill of lading to the importer. It can get a bit more complex if a mold or special tooling is necessary during development.

Those vendors who insist on more favorable terms are usually seeking to trap you. I recently worked with a buyer who was so confident he would receive a good product he paid the full price before production. Needless to say, delivery came late and there were quality problems. He had nothing to use to leverage appropriate corrective action.

Another popular method is to pay by irrevocable L/C (Letter of Credit). Most serious exporters accept an L/C if you specify reasonable terms. You can send the draft to your supplier for approval before the letter is formally “opened” by your bank. Bank fees are higher than when you pay via T/T, but you are much better protected. I advise using an L/C for new suppliers or for very large orders.

4. Control Your Product Quality in the Factory.

How do you make sure your supplier met your product specifications? By going to the factory yourself and monitoring for this or by appointing a third party inspection firm to manage this process for you (for most shipments, third party quality control companies charge less than USD$300).

The most common type of quality control is a final random inspection of a statistically valid sample. This statistically valid sample gives professional inspectors enough to quickly and cost effectively draw conclusions about an entire production run.

In some cases, quality control should also take place earlier so as to catch problems before all production is complete. In these cases, an inspection should take place either before the components are embedded in the final goods or when the first finished products just get off the lines. In these cases, some samples can be picked up and sent for lab testing.

To take full advantage of QC inspections you should first have defined the product spec sheet, (see section 2 above), which then becomes your inspector’s checklist. Second, your payments (see section 3 above) should be tied to quality approvals. If you pay by T/T, you should not wire wire the remainder of your payment until your product passes final inspection. If you pay by L/C, the documents required by your bank should include a certificate of quality control issued by your appointed QC firm.

5. Formalizing the Previous Steps

Most importers are not aware of two facts. First, it is possible for an importer to sue a Chinese supplier, but it only makes sense to do it in China — unless that supplier owns assets in another country. Second, your purchase orders will aid in your supplier’s defense; they almost certainly will not help you.

To minimize your risks, you should buy your product pursuant to an OEM agreement (preferably one that is in Chinese). This contract will decrease your chances of problems and give you greater leverage should a problem occur.

My last bit of advice is that you be sure to put this entire system in place before you start negotiating with potential suppliers. Doing this will let them know that you are a professional importer and they will respect you for this. They will be more likely to agree to your requests because they will know that you can easily find another supplier. Perhaps most importantly, it will be much more difficult and much less effective if you start scrambling to put this system in place after you have already placed your order.

  • China Buyer

    Nice list Dan and Renaud. Thanks for running this. I’m going to pass it on to my employees.

  • Sadeky

    This is a really good list. Thanks for getting Renaud to write this.

  • 5 solid pieces of advice.
    Two I always found to be useful as well is:
    1) Troubleshoot in advance. Look at your product, figure out what COULD go wrong at ANY step of the process, and plan for it
    2) Split it up (would fall under #2 above). Don’t let a single supplier manage your entire product unless your product IS a single product. Split it up, find a third party to assemble it, and manage the sub suppliers yourself (i.e. control the entire process). It will cost more per piece, but the additional outlay is not an expense.. it is an investment in quality control and IP protection
    .. and, as mentioned above, do all of this BEFORE formalizing any agreements, paying for any molding, or drinking any maotai.
    R

  • All Roads: very good advice, I totally agree.

  • Molly M.

    Great piece. I plan on following all of these steps the next time. My “just buying” from China the last time certainly didn’t work.

    • Bilal

      Dear molly give the detail how to make business wth china supplier

  • John

    Great article Dan & Renaud!, Thank you.
    I´ve heard a lot about contracts but I´ve never seen one. I´ve always work with PI and TT payment terms with suppliers. Could somebody share a contract sample with us?

  • ChinaMike

    A very solid list Dan.
    Within each point there are critical sub-points to remember as well. Here is one.
    When conducting your supplier audit ,ask several times where the factory exports to and what percentage of their products go where.
    At the end of the visit be sure to look around the warehouse and loading platform and take note of the shipping marks on the boxes. Do they match the manager’s export destinations?
    Then go look online and check customs and shipping logs to see if they match as well.
    You will find out:
    How honest the manager is about his business
    Whether they actually have experience making products for and shipping to your key market(s)
    Whether you will or will not have to contend with a factory that may leak your IP to other companies buying from your market

    • Bilal

      Dear china mike,,i want to start my own business
      With china now i need a good supplier and i also wanna know the procedure of tax through a supplier where send to these products.plz reply

  • Asian trading

    Great list, but is it not true that even if we do all of these things, there is still a pretty good chance we will get ripped off? Isn’t that the nature of the beast?

  • Joe

    In other words, never leave any part of your contract with a Chinese supplier open to interpretation or your supplier will take any shortcut they want to, leaving you exposed to problems.

  • @ Asian trading: if you do all these things (including checking other customer references and running a background check on potential suppliers), the probability of getting ripped off goes down considerably. Really.

  • @ Joe: yes, you are absolutely right.

  • The list is great. Many of my clients are doing business in China, now I can refer them to you blog. Solid and resourceful information.

  • This is the single ideal for buyer, but trade going with both supplier and buyer getting agreed. Many seems will not suit for present china situation. In my opinion, the key of the trade is trust and fiduciary responsibility. Do you agree?
    The other point, I suspect is third part inspection is still not good work in china, maybe the thrid part inspection company rule is strict, but I heard from my friends that money could make most of third part inspection staffs shut up their month and not obey the inspection contract.
    In the other hand, some buyer payment term is “after third part inspection company confirm quality is ok, then payment will be sent or L/C could be available, so supplier will take more potential risk for unsured factors.
    There is no perfectly, so have to give up some not very important and find which fit you.

  • When I checked prices and products from China I was excited at first, but I was trapped in Free shipping deals, items with free shipping are shipped by China Post or “sellers choice of Shipping”, and once shipped they are like lost, they take millions of years to arrive. Sometimes, you cant even trace them because tracking link they provide takes you to a 100% Chinese language site and you desperately need a interpreter. There are dependable shipping options like DHL or Fedex but they are way to expensive. Finally when the product arrive in your home country, you may end up paying handling charges or import duty depending upon cost or weight of the product. Even There are lots of China base sellers on ebay or Amazon.

    My suggestion are-

    1. Buy from local sellers online offering free shipping and no Tax.

    2.Before buying from eBay or Amazon make sure seller is based in Your Home country( US/Canada). Lot of sellers are smart enough to hide the fact that product will be shipped from China/Hongkong. you have to do research and find out. You can even email sellers asking where the product will be shipped from.

    3. Check what currency they will accept because if you buy from Canada and sellers accepts USD only, you will end up paying charges/fees related to currency exchange.

    4. Never pay directly to sellers, instead use platform like Alibaba, Aliexpress, dhgate etc and of course Amazon or eBay.

    5. Recheck at the checkout and make sure that is the product you want to order.

    Happy buying

    • Zheng Kaipei

      Good suggestion. And reliable.

  • Peter Wong

    Good knowledge.

  • Jerry Kou

    Nice!

  • Jim

    Nice list ! Thanks.