7 Deadly Sins of China Sourcing. We get questions all the time from clients wanting to know the perils and pitfalls of doing business with China. We have written often about how to set up a solid supply chain with Chinese factories and offered key tips on how to source effectively from China. So we thought now would be a good time, as we move into the new Chinese Year, to provide a concise list of some of the challenges to keep in mind when sourc- ing product from China.

1. The Seven Deadly Sins of China Sourcing
We get questions all the time from clients wanting to know the perils and pitfalls of doing business with
China. We have written often about how to set up a solid supply chain with Chinese factories and offered
key tips on how to source effectively from China. So we thought now would be a good time, as we move
into the new Chinese Year, to provide a concise list of some of the challenges to keep in mind when sourc-ing
product from China.
GLUTTONY - One of the biggest challenges for many buyers, especially inventors or small companies that
do not have proven sales channels for the products they wish to manufac-ture,
are the particularly onerous minimum order quantities (MOQs)
that are imposed by Chinese factories. High MOQs typically result in
an order that exceeds the number of pieces a buyer would normally wish
to purchase. The consequences can be significant. For one, there is the
capital cost of purchasing large quantities of product that will sit in in-ventory
while sales evolve. The inventory not only has a capital cost of
carry (including the cost of goods, warehousing expenses, inventory
management expenses, etc.) but also aging expenses that can result
from packaging becoming damaged or the product being held past a
GTD (good-til-date). Therefore, it is often advisable to try and find a
lo- cal solution - one that can be easily monitored - with a factory that is
willing to do smaller order quantities (at a higher price, of course) until sales channels can be developed
and Chinese MOQs are not as daunting.
GREED - We often come across companies that are willing to do just about anything as long as they get the
best price on the products that they wish to source. Some
companies, especially for products that behave more like
commodities, have been even willing to take massive qual-ity
discounts in order to improve their pricing position.
The argument goes something like this: while we realize
the price we are paying is only possible because the sup-plier
is using the lowest quality materials/products/pro-cesses
to manufacture our goods, I am willing to accept
the defectives and problems that come along with this be-cause
the savings I am obtaining more than makes up for
the returns and allowances I need to provide to cover my
losses. Of course, the logic is flawed on many levels. But you would be surprised how many companies
we have encountered that think exactly this way. The reality is that for most companies, the lowest price
alternative is usually the highest cost solution because the expenses related to delays in production (while
defective goods are addressed), returns by clients, brand dilution, and even time dedicated to factory
selection (usually the lowest price manufacturers are far more likely to go out of business) etc. more than
exceed any savings. This is the norm and hence we encourage all our clients to look for delayed gratifica-tion
when purchasing from China - they will be happier in the long run.
| Guadalajara & Mexico City, Mexico | Toronto, Canada | Fort Lauderdale, Florida | São Paulo & Florianópolis, Brazil | Shanghai & Shenzen, China |
| www.thechinasourcingexperts.com | 1-877-673-7887 |
Copyright© Sertus, LLC 2014. All Rights Reserved.

2. Wrath - At some point, anyone having
done business with China will have fallen
prey to this cardinal sin. The capital vice
of wrath, or the inordinate and uncon-trolled
feelings of anger, are frequently
the product of some bad experience that
usually is rooted in a perceived slight by
a supplier. Sometimes the slight is signifi-cant
(like outright fraud or larceny, piracy,
etc.) and other times it is less egregious
but equally frustrating (like breeches
in quality control, oversights, excessive
delays in delivery, among others). Too
often the problem can be traced back to
a poorly established relationship with the supplier. This is not to say that are inherently good intentioned
and are led astray because of a faulty relationship. Clearly there are some self-serving, malevolent deceit-ful
companies operating in China. But we have found attention to building personal relationships with
counterparts to be key in separating the wheat from the chaff. Guanxi (pronounced “gwan-shee”), is usu-ally
translated as “social connections” or “relationships”. But these definitions don’t do justice to the full
meaning of the term. Guanxi is a system of mutual obligation – one that has been described as relation-ships
based on mutual dependence. With good guanxi, there is a much higher chance that wrath is kept to
a minimum.
Envy – Ask someone who has experience sourcing from
China how they ended up working with Chinese manufac-turers
and most will tell you a success story of an acquain-tance
or possibly a company they read about. There is a
huge amount of “me too” that has brought thousands of
companies to look for their Chinese factory that will make
them millions. China manufacturers do have a reputation
of being expert copycats. Send a sample of a product you
would like to source and they can create an exact replica at
competitive costs. But recently, China has become more
adroit at developing new designs and as a result, contract-manufacturing capabilities have been on the
rise. Growing individualism is supporting consumer demand for unique products and China manufacturers
are attending to the needs for greater customization. Yet there continues to be a great distrust of Chinese
factories and many companies with unique designs are reluctant to send them to China for fear their intel-lectual
property will be stolen. While legal protective mechanisms exist, enforcement in China is still not
a simple process and can be expensive, reducing the effectiveness of patent registration and fueling the
fears of idea theft. There are supply chain solutions that can be implemented, which are far more effec-tive
at protecting intellectual property but you need a partner you can trust to help you implement these
strategies.
The Seven Deadly Sins of China Sourcing
| Guadalajara & Mexico City, Mexico | Toronto, Canada | Fort Lauderdale, Florida | São Paulo & Florianópolis, Brazil | Shanghai & Shenzen, China |
| www.thechinasourcingexperts.com | 1-877-673-7887 |
Copyright© Sertus, LLC 2014. All Rights Reserved.

3. The Seven Deadly Sins of China Sourcing
Pride – Perhaps the most serious of the seven deadly sins (as it is the origin of the others) is pride. In
China sourcing, this is the “I can do it all” complex. I am smart enough, sufficiently qualified, experienced,
and knowledgeable to be able to find my own suppliers, place my own orders and manage this from
hundreds of miles away. But the reality is that even the mere barriers
of time and distance make this difficult and impractical. There are many
companies that can help with setting up an efficient and practical supply
chain that can help with China product procurement, purchasing, produc-tion
management, quality control and delivery. Find a partner that can
act as your eyes and ears on the ground in China – an advocate for your
interests – and that can help you with all your negotiations with Chinese
suppliers. Invest your time in building this trustworthy relationship and it
will save you millions in the long run.
Sloth – One thing is certain: in China lead times can be lengthy and will be certainly longer than you antici-pate.
But good preparation and oversight can significantly eliminate excesses from the production schedule.
Understanding your suppliers’ production cycle is important but having a contingency
plan is vital. China’s infrastructure has vastly improved but it is still challenging. Elec-tricity
shortages that have shut down production lines are more common that one may
think. Similarly, there have been thousands of companies that have shut their doors
due to aggressive business practices implemented to win market share or simply due to
ruthless competition. For your manufacturer, losing a supplier could paralyze his pro-duction
line and delay delivery of your goods. Likewise, factories regularly will leap frog
your order in the production queue for a more profitable or important client, pushing
back your delivery date. Hence a robust production management and monitoring plan
will help keep your orders on time and save you money.
Lust – The last of the deadly sins is lust. In China, the ob-ject
of desire is money and most factories will do just about
anything to get their fair share. But it is the lust of the buyer
that we wish to focus on here. Too often, companies looking
to source product from China are over eager to place their
order and get their products delivered. It is highly com-mon
for buyers to be in need of the goods they are ordering
in a time frame that is not only shorter than what normal
production cycles in China would dictate, but often so far in
advance that they begin to cut corners. This is a huge mis-take.
Perhaps the most important single piece of advice we could give buyers is to do the heavy lifting up
front. Prepare. Prepare. Prepare. And when you are done with preparing – prepare some more. We can’t
stress enough the importance of clear standards that are clearly communicated to your factory and taking
the time to get a perfect sample prior to mass production. Even the process of factory selection should be
done with great care and diligence. All of these precautionary activities will save you money and hassle
later on.
| Guadalajara & Mexico City, Mexico | Toronto, Canada | Fort Lauderdale, Florida | São Paulo & Florianópolis, Brazil | Shanghai & Shenzen, China |
| www.thechinasourcingexperts.com | 1-877-673-7887 |
Copyright© Sertus, LLC 2014. All Rights Reserved.