Whenever I give a speech or write an article or post about what it takes to succeed in China, I invariably list “a good Chinese partner” as item one. Perhaps not surprisingly, I am always getting asked how to find the “good Chinese partner” to which I am always referring. My initial response is usually something like “with great care.”
But if the questioner pushes me for more details, I then tell them they need to conduct due diligence on their Chinese partner. And if they ask me what that means, I tell them it depends on what the partner will be doing, as obviously more due diligence is required for a USD $5,000,000 deal than for a USD $50,000 one. For the $50,000 transaction, an internet search, preferably in both English and in Chinese may be enough. For a $5,000,000 deal, much more will be required, especially if the full $5,000,000 will be at risk.
More specifically, I am often asked what to do to find a really good manufacturer of x product. To which I actually have a fairly substantive response. I usually list out the following three options:
1. Do it yourself, from the comfort of your own coach. Use a website like Global Sources or Alibaba, which list hundreds of thousands of Chinese manufacturers and do some (very minimal) filtering out of bad actors. I have dealt with companies that have developed good long-term relationships with Chinese manufacturers found on this sort of website, but I also have dealt with plenty of companies that have experienced unmitigated disasters. In my experience, these websites generally work better when the product is a relatively simple and standard product and neither quality nor customization are paramount.
2. Do it yourself, with a China fly-by or two. Use a website like Global Sources or Alibaba to come up with 1-10 potential suppliers and then get on an airplane and visit them. There is a lot to be said for this in that visiting accomplishes three important things. First, it allows you to see the facility of the Chinese manufacturer that may be making your product and a lot can be gleaned from that. Second, it allows you to meet the key person or people at the Chinese manufacturer that may be making your product and a lot can be gleaned from that. Third, it lets your eventual Chinese manufacturer know you take your products seriously enough to come to China to make sure they are made correctly. I am convinced this alone makes the trip worthwhile as it increases the likelihood of you getting good product.
3. Engage an intermediary (trading company, sourcing agent or factory representative) to conduct this research on your behalf. This you are going to have to pay for, one way or another. Some of these companies charge you an upfront flat fee for the work. Some charge a percentage of what you purchase for one year, three years or forever. Some charge a set amount for the product and then buy it for less from the manufacturer. There are pluses and minuses to all the payment methods, but generally, the more you pay early, the less you will pay in total.
Some intermediaries are invaluable. Others are completely incompetent or, even worse, flat out crooks. Some do not even reveal that they are acting as an intermediary, leading you to believe you are dealing directly with the factory. My law firm has made plenty of people unhappy when we have had to tell them that the reason “their” factory isn’t going to be providing them with any product is because they do not have a contract with the factory and the factory from which they previously received their goods does not even know they exist.
It should go without saying that you should first determine whether you need an intermediary and if you do, you must choose that person or company very carefully. What does need to be said though is that if you are using an intermediary, your contract with your intermediary and the contract with the manufacturer should mesh and both should be written to protect you, and not your intermediary or your factory. Far too often companies come to us with bad product and upon reviewing their contract with their intermediary and the purchase orders between the intermediary and the factory, we have to tell them they have virtually no chance of any remedy.
There are, of course, other options in addition to the three set forth above, including doing your own manufacturing in China, but the above three are the most common for SMEs.
What do you think?