In a recent post by Renaud Anjoran, entitled, Bad relationship with a Chinese supplier: just end it!” Renaud asks when a buyer of goods from a Chinese manufacturer should end its relationship with its Chinese supplier. I often wonder the same thing.
Let me explain. 
I often get called by buyers of Chinese product who want me to write a killer manufacturing contract with their Chinese supplier right after their Chinese supplier has provided them with poor quality product and refused to give a refund for it or to provide new product at no cost. In these situations, I always tell the buyer that, at minimum, they should also be looking for another/backup supplier. Many times their response is that they do not have time. I then tell them that I have real doubts about their supplier and that even the best contract can only do so much in such a situation. See e.g., the Powerpoint of a recent speech I gave in which I set out the two key factors for avoiding a dispute with your Chinese partner: 1) a good partner, 2) a good contract.
I am always concerned about these situations because I have always felt (I am intentionally using the word “felt” here because I lack empirical evidence on this) that once a Chinese supplier provides bad product, things rarely, if ever, get better from there.
Now back to Renaud’s post.
Renaud seems to be thinking the same way:

Many importers have a bad relationship with their key Chinese supplier(s), but they don’t look for other companies. Sometimes it leads to unbelievable situations. For example, some buyers got screwed on 3 orders in a row by the same manufacturer!

On the face of it, it is surprising, especially given the thousands of Chinese exporters competing for buyers’ attention. When one supplier is not performing as expected, the importer should terminate the relationship, right?

Unfortunately, things are not that simple.

Reanaud then goes on to methodically set out why this is so often the case:

  1. It takes time to develop perfect samples, and some materials/processes have to be adapted to the factory’s capabilities.
  2. Buyer does not check quality until delivery in importing country (i.e. after full payment).
  3. Quality issues are discovered; buyer asks for a compensation.
  4. Supplier only promises a discount on the next order; buyer has no leverage to negotiate a better deal.
  5. Importer is upset, but places a second order to get the discount.
  6. Manufacturer finds a way to increase the price after the deposit of the second order is wired; importer has no choice but to accept.
  7. This time, buyer checks quality before shipment. Some issues are noticed. Supplier refuses to repair. Importer’s customers are asking for the goods. Shipment is authorized, and part of it is by air (at buyer’s costs).
  8. Buyer looks for another factory, finds a few candidates, is very wary this time.
  9. Production has to start again fast. New developments with a new factory would take 2 or 3 months. Importer gives a last chance to the same supplier.
  10. Third order is even worse than second order; buyer gets really upset and desperate; production is canceled and deposit is lost.

Renaud notes how the buyer did many things wrong in this situation, including having failed to qualify the supplier properly, failing to have followed quality closely, and failing to have secured a back-up manufacturer. It is a no-brainer for me to agree.

Renaud then asks when in a bad situation should a buyer of Chinese goods cut off its Chinese manufacturer for good:

But, after he was engaged in this situation, when should he have stopped the relationship? Just after the first order? Or maybe the second order should have been smaller? There is no right answer.

In any case, a back-up source should have been developed right after the first quality problems were found (and after difficult negotiations led nowhere).

Am I right?

Is Renaud right? I think he is and, in fact, it is easy for me as a lawyer (as opposed to someone who needs product right now) to say that the best time to walk away from your Chinese supplier is at the first hint of trouble. But at the same time, I also recognize that no Chinese supplier is perfect and that some of them must recover from their problems.

So here’s my question. What percent of the time does a Chinese supplier who has provided bad product and not owned up to it provide good product the next time? What has your experience been? Please speak up.

  • In the majority of cases that I have seen, if the first production is not good, it does not improve over time. I’d say in 80% of cases.
    Then there are special situations, for example the manufacturer subcontracted production in a cheap workshop, and then takes better care of the customer in following orders. It does happen. I even saw a lingerie supplier re-produce a batch of strings FOR FREE, because the photos from the customer showed the problems were really unacceptable.

  • Import Veteran

    In my experience (16 years sourcing all sorts of product from China), once things go wrong, they only get worse from there. My advice is not to enter into a new contract with the same supplier who caused you the problems, but to enter into a new contract with someone else.

  • ollumi

    I’ve had exactly one supplier out of nearly 10 years who went bad, then recovered. The rest just went from bad to worse.

  • Nicole

    Let’s see now. I’ve done deals with 8 Chinese suppliers and all 8 eventually went bad and never went better. So I would say it’s 100%.

  • Chinamike

    Renaud NAILS it in his 10 points.
    We just had a project whereby the supplier we chose and manage on behalf of a US client completed production, we inspected, everything was great.
    The products arrived in the US, and then went on sale. Some customers let our client know that one of the metal rings in the product was not performing as expected. It is something that the client and our guys could never have seen without the product being used in the field.
    Because of the contract we negotiated and because we have relationships inside and around the factory we got:
    The poorly functioning part was produced and shipped to my client at no charge. The replacements were made and everybody is happy. Order number 2 is under way.

  • Even when you’re dealing with a trusted partner, things can go bad. I’m currently dealing with a chinese manufacturer with who I’ve worked during 4 years.
    His usually perfectly-timed shipping now has 4 months late. And of course, as I trusted him, I did not look for any alternative sources at the beggining.
    Now that’s what I’m doing, but i lost time, a long-time partner, and the trust of a long-time customer.
    I wish I had read your blogpost before, but I doubt it’d been as an efficient lesson as living it.
    Thanks for your blog,
    Antoine

  • Bob

    What does someone do when a Chinese company is demanding payment for items which were improperly manufactured. This Chinese company has reported me to a collections firm in the US. and a lawyer has called me asking if I was going to pay the bill. The bill of lading says the items are worth .03 each and the Chinese company is claiming that the items are worth .45 each. I never signed a contract with the company, only agreement via my assistant’s email. I had another Chinese company produce the items and did not pay the Chinese company that did a poor job. I don’t know if the first company can sue and win based on our email agreement.

  • benoit

    benoit December 9, 2011 at 10:50 PM
    I have been dealing for the last 32 years in manufacturing industries with many differents countries .
    I have to say before China came along most of our suppliers were about honest or if problem happened in general we always come to some acceptable conclusions , especially regarding europeen suppliers .
    Since we are starting to trade with China and this is relatively new in world trade history ,major problems started .
    they are probably the most deshonest people on this little planet .They have no consideration what so ever about people especially non-chinese .i will not start to enumerate all bad experiences I have had but I really think we should asap stop trading and finance them .
    every penny you will give them will eventually be used against you . this is clear as cristal rock .
    I have at disposal to anybody interested by , a list of bad chinese suppliers , with whom we have occured terrible problems either financial , copy right, bad quality etc..
    benoit Tourres