3 Common Chinese Supplier Problems

by Julian Righetti on December 13,2012 in China Trade ,

One of the most common Chinese supplier problems I hear about from importers is something like, “they haven’t emailed me in 2 weeks and the delivery date is tomorrow.” Below are some of the common Chinese supplier problems we see and how to prepare for them.

1. Supplier Shuts Down Communication

A Dallas-based import company I am familiar with was struggling with their manufacturers. After placing a large order for plastic bottles, the importer said the factory went radio-silent. Emails were not returned, calls ignored, and the general decline in customer service was sudden and apparent.

What is going on in China?

There could be a number of reason why communication has suddenly and bizarrely shutdown. It might not be anyone’s fault. A common Chinese supplier problem is that the factory could be experiencing labor strikes (https://chinastrikes.crowdmap.com/). Similarly, perhaps there is a new sales representative handling your account.

“In 2010 the employee turnover rate in China was 19%, well above the rate of just 5% in Western countries. This translates into loss of know-how and reduced productivity at the companies affected. Currently, Chinese human resources (HR) departments often do little more than administrative tasks. Firms urgently need to develop HR strategies to remain attractive and competitive as employers.” -Roland Berger

You might also have just pissed off the wrong person or your business is just not that important to the sales person.

We continually struggle to find suppliers who are willing to sell us orders in smaller quantities. Because the risk of doing business with anyone in China is amplified relative to the West, each deal, large or small, takes a significant amount of time. If your order is just not as large as another clients, you are going to get deprioritized. Moreover, if you communicate in an extremely demanding, pushy, or disrespectful way, you are likely to get ignored. Ignoring someone in Chinese culture is the similar to insulting them because you are not giving them face (mianzi).

Counter: Recognize that your order may not be as important to a large Chinese supplier as another clients. Communicate in a more deferential manner. Calculating how much respect or face to give someone in China is extremely important. If you act like a jerk, place a small order, and miscommunicate, you are more likely to get ignored. Show respect to get better service or switch to a smaller supplier who will value your order more than a larger factory.

Tips:

Always build in China production lead-time that takes into account the risks of working in a developing country.

Pick qualified suppliers who have a proven record with verifiable clients.

Communicate professionally and respectfully with your supplier. (This doesn’t mean give in to their demands on pricing, but develop judgment to recognize when you are asking for too much. A Chinese supplier might agree initially, but later renege or fail to fully complete something).

2. Product Quality is Poor

If the quality of the products you ordered is not what you expected, you either A) failed to specify clearly what you wanted B) your supply chain operation is disorganized C) you were working with an unqualified supplier who deliberately lied to you -sorry 🙁

A) Communication is the key. Do you have a contract? Did you specify the exact dimensions, subcomponents, and material for each subcomponent? Did you mandate specific packaging requirements? Does your supplier know exactly how to assemble your product? Did you perform a third-party inspection?

We were working with an importer from the United States who had a customized designed, multi-component product. One part of the product was manufactured by one factory while the other was manufactured by another. The second factory needed to receive product from the first to complete the order. The two factories needed to communicate about colors, dimensions, material, and a range of other issues. If this isn’t managed by the importer, then the risks to receiving poor quality products are magnified.

Poor management and miscommunication are how mistakes happen. If your sourcing team is not up to the task, the results will be poor quality products.

B) Have you done enough due diligence to ensure your supply chain operation is fluid and battle ready?

This Chinese supplier problem often manifests through middlemen.

Remember this rule:

Anyone will offer to make you anything in China regardless of what skills, knowledge, or expertise they have in that field.

China, literally, means “middle kingdom” and they surely spawned the role of the middleman. How many middlemen are between you and the actual producer? Middlemen can sometimes be useful in China, but then again often they are not. We regularly have very large factories that we have audited and physically inspected, quote products out to us that they do not actually produce. They will subcontract out this work and bid it out to a smaller factory. They hide behind their superior branding.

Who is actually manufacturing your goods? Do they even know what the right order is? Are you in control of this process? Mistakes are much more likely to happen when the entire supply-chain is built on a shoddy foundation.

C) If you were cheated or lied to, then I am sorry. Next time:

Verify and authenticate your supplier.

Use trade services or quality control inspections to mitigate

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your risks.

3. Chinese Supplier Problems-Negotiations-Common Situations that Occur

Chinese Supplier Negotiation Tactic 1: Last Minute Squeeze

There’s a deadline coming up. You are running out of time. You need to confirm that your supply partner in China is ready. You need to finalize the contract so you can meet your USA import goals. Suddenly, the Chinese partner pushes for last-minute concessions. You freak out!

For anyone who regularly does business in China, this really shouldn’t surprise you. In fact, arm yourself with the knowledge that this is very likely to happen.

Counter: ALWAYS NEGOTIATE WITH MULTIPLE GROUPS SIMULTANEOUSLY. Never shut the door on one negotiating party until you have a firm agreement. Leveraging everything you have on one group is just handing them the keys to your business. Don’t give away that advantage. Build in dummy deadlines and extra time.

Chinese Supplier Tactic 2: Middleman Ring-a-round

You have been negotiating with Mr. Wang for 6 months. You have a rough agreement. Now, Mr. Wang brings in the big boss, Mr. Peng, who completely tears up everything you already decided.

Who are you talking to? Are you talking to an end-user? Legitimate seller? Did you just spend 6-months working with someone who actually has no formal connection to a company?

The middlemen culture in China is complex and complicated, but often used in negotiations to create advantages. First, you spend lots of time revealing your position to someone who has no power to actually agree to anything. The real boss is secluded away, constantly conferring with a subordinate, but not visible in the negotiations. This distance from the actual negotiations allows them to waive any liability of the first deal or responsibility for an agreement. They can always say, “oh dear, I am sorry, but Mr. Wang is not really authorized to finalize this transaction. I was not aware of point xyz. You do not really understand Chinese culture.”

Counter: Do your homework. If you’re getting played around, play games until you know you have the right contact who has the power to really agree to something. Waste time. If a Chinese party wants an agreement fast, they will act fast. If they are slow-playing you, then you need to look at other options and force them to make the first move.

Trey House is a managing partner of Hammersourcing.com. He enjoys discussing Chinese culture and entrepreneurship. He lives in Shenzhen, China and can be reached at trey.house@hammersourcing.com

 

 

 

 

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