How to Deal with the Challenges of Sourcing in China
October 24, 2011
“The purpose of Alibaba’s existence is not to defeat others, but to make the business worldwide more and more transparent and fair, we hope there is no corruption in commercial circles.”
-Jack Ma-CEO of Alibaba Corporation
Under the leadership of the ambitious CEO, Jack Ma, Alibaba created a miracle in the business world of B2B, becoming one of the biggest online trading markets and business communication communities. Taobao and AliPay make on-line purchasing more and more convenient for us while Alibaba’s international and domestic stations exhibit their power to both sellers and buyers worldwide.
Despite having the dream of contributing to the business of transparency, the fraud and scandal which Alibaba exhibited in which its salesman granted “gold status” to those suppliers who regardless of their status turned out to still be unreliable, disappointed those who rely on the B2B website to collect information and sustain their production. If we blow this out of proportion and ignore Alibaba entirely, we are shooting ourselves in the foot. However, equally, we would also be remiss to totally ignore Alibaba’s scandal allowing them to hold this “gold supplier” status over the heads of us buyers. We must learn to view things in a more critical manner, especially when choosing qualified suppliers and we should know that tools are just tools and not complete solutions for China Sourcing. For this, we too, as a sourcing company, need to be level-headed and sharp-sighted when we help our clients buy direct from China: making smart judgments, giving good advice, and reporting information to clients with total transparency.
In modern society we are always surrounded by all kinds of information, so to eliminate all the false and retain the true is likely an impossible task to tackle. And with the incredible speed of China’s development particularly in exports and manufacturing, we have witnessed an era in which good and bad manufacturers are mixed in the same pot with increasing frequency with every enterprise just wanting to take as big a share as possible. Which China manufacturers are professional, cooperative, and sincere? Which simply hold a post without qualifications?
A good way to get a perspective on this situation is by listening to the various voices of the respective parties.
Party 1: Clients
– I can’t find a capable supplier.
– My suppliers are continuously raising prices!
– My competitors are trying to lure my best supplier away.
– The delay of the delivery is an endless story!
– The attitude of my supplier is changing, he doesn’t seem to be as interested in taking orders anymore.
Party 2: Suppliers Who Can Supply High-Quality Products
– Our production line is becoming rather busy and we are less interested in dealing with new clients.
– When most of the Request for Quotations (RFQ) turn out to be market tests, we simply end up using them as an opportunity to train new staff.
– Only orders with large volumes are welcome.
Party 3: Unqualified Factories
– Our FOB price is $3.60 not including tax. (Are you asking us to smuggle? How does the FOB not include tax?)
– If you can widen your tolerance, we can produce for you; actually, this product doesn’t require such precision. (Are you telling us how our product should be made and to what specifications? What happened to the customer is always right?)
– The ETD is August 18th, and we’ll ask the forwarder to send the goods from the factory that day. (Unclear information. Does the ETD equal ex-factory date?)
Party 4: Local Trading Companies
– We have all kinds of factories specializing in all kinds of products. I promise!
– Yes, I can promise that we are the best suppliers for every item on that list of 20 products. (Really, the best? In all of China?)
We can say China sourcing is seriously becoming more and more challenging. Of course, we should not mistake a part for the whole, as China absolutely still has many advantages in many industries regarding factors such as costs, quality and professionalism. Most of the problems detailed above have actually been improving over time as Chinese suppliers get used to working with companies from the West. Nevertheless, you need to make sure you are well prepared to deal with all of these things should they happen to you.
Being risk averse, to some extent, is becoming a more and more important component of profit maximization, and traditional western sourcing approaches seem consistently ineffective at finding the most suitable suppliers. An example that we have seen is a western company that identifies 300 factories from a database, and then sends RFQs to 150 of them to secure the quotes. 100 of them respond, but only 20 out of these 100 are truly credible enough for further contact. After several rounds of communication or negotiation, you find one company that is capable of cooperating. Based on our experience, for most of these companies, the importance of world class sourcing capability is experience, and it is an essential piece for finding business success in China.
While faced with challenges, in an effort to take advantage of these profit margins, wiser buyers will choose to seek a sourcing representative. This means finding an “eye” that can be relied on to pay attention to the smallest details, an “ear” that is alert to market changes, and a “mouth” that facilitates clear communication between the client and the supplier. In this way, you can more reliably eliminate the uncertainty of buying direct from China.
Generally, regarding product sourcing, a good company should adhere the following procedures:
1. Understanding: What do you need and what do you want to achieve?
2. Supply Analysis: What can China supply for you?
3. Sourcing Strategies: Match your needs to the supplying reality in China.
4. Supplier Selections- Which is the right supplier for you regarding price, quality and service?
5. Contract Implementation: Turn the purchasing plan into a reality.
6. Supplier Supervision: Finish the production as good as or better than planned with the proper Quality Control and proper time management.
Making your business easier is our mission, and we are always happy to accomodate. You choose, you instruct, and you will succeed!
By Coral Lee- Sourcing Manager
If you’d like to read more about the Alibaba scandal, read President of CPG Michael De Clercq’s post Sourcing in China and Alibaba.
To find out more about how CPG can help you with your sourcing needs, check out our Services page for more information.