China isn’t just a source of low-cost labour and cheap manufactured goods. (It’s never been just that, even if that was the popular perception a few years ago…) It’s a highly developed, mature economy made up of many well-established businesses. So how do those “in the know” do business with Chinese suppliers? Here are 13 crucial tips…
1. Be clear about your needs. This applies to any supply, of course, but if you’re working with manufacturers on the other side of the world, leave no room for confusion about what you’re buying, how you want to work and the effect the relationship will have on your extended supply chain.
2. Visit China. Yes, you can do a lot of the prep work online, and even agree terms and payments via email. But there’s no substitute for a site visit. It will ensure you know how things work, you can reassure your own customers about conditions of supply – and you’ll build valuable personal relationships. If you can’t visit, a video call using a system like Skype is better than email.
3. Check the bona fides. Chinese companies must file for a registration number with their Ministry of Commerce. If there’s no supplier’s registration certificate, the company could be a front for con-men. Check on these and other documentation.
4. Finance is key. Even with well-established customers, Chinese companies will typically ask for 30% up front before they start work and the balancing payment on confirmed shipping to your agents. (And remember: after that your products could be on a ship for another six weeks.)
5. Circle of trust. Know your legal position. If you’re having your own designs manufactured, don’t forget to consult lawyers or advisers well versed in the protection of intellectual property (IP). Get advice about non-disclosure agreements, dispute resolution and local contract laws.
6. Relationships are key. Chinese business culture is very distinct. For example, they set huge store by not losing face in business deals, and (particularly in smaller businesses) family and the Confucian tradition of respect remain important. Getting close to your suppliers means building personal trust (in part by demonstrating your competence, expertise and work ethic) and increasing everyone’s room for manoeuvre.
7. Learn the language. This might seem extreme – but more and more businesses in the West are seeking in-house mandarin speakers to help build better relationships and speed up communications with Chinese suppliers.
8. Check the calendar. Chinese “Spring Festival” (New Year) is the country’s biggest national holiday. Lots of factories shut down as workers return home to their families. That means production halts – and even logistics slow to a crawl. In 2016, February 7th to 13th – ushering in the Year of the Monkey – are the dates to look out for. Watch for May Day, the Dragon Boat festival in June and National Day in October as well.
9. Logistics. Finding the right supplier and agreeing terms is just one end of the chain. Equally important are the steps you put in place for local quality control (either by visiting the production line or hiring a local agent), packaging, transit to docks and sea or air freight. There are many freight-forwarding businesses that can build a complete solution; smaller or more time-sensitive consignments can be handled by well-known fulfilment and courier businesses.
10. Keep an eye on the Dollar. Most trade with Chinese suppliers is still prices and settled in US Dollars – so Dollar movements against both Sterling and the Renminbi (RMB or “yuan”) should be on your radar. China has opened up in currency somewhat in recent years, and some Western customers see a value in doing deals in yuan. But unless you have a treasury function, play safe on currency and ask the experts.
11. Red tape. If you’re not getting a third party to handle the paperwork, there are a host of import regulations, tariffs and duties to consider, both local to the UK and EU-wide. The two systems to remember are SAD and CHIEF. SAD is the CDD form, Single Administrative Document – an import declaration to HMRC. These are submitted via Customs Handling of Import and Export Freight system. You’re also going to need commodity codes for whatever you’re importing, and be prepared for VAT and any duty.
12. Alibaba can be useful. The world’s biggest IPO? Must be a reliable business, right? Alibaba.com, which allows you to source Chinese suppliers, is a trusted global brand. But not every company listed on there is legitimate, reliable or adheres to regulations. If you find the goods, services or facilities you need online, head back to point one on this list… and proceed carefully.
13. ABOVE ALL… Get assistance. This checklist is not exhaustive – and if you’re heading to China for the first time, or even looking at changing suppliers, getting specific help from specialists, trade associations or government agencies and embassies is invaluable. And remember: thousands of UK entrepreneurs now have direct experience of working with Chinese suppliers. Ask your contacts for their own tips.