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Importing from China: Due diligence, solid contracts and effective finance management

by Tom Pattinson
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There are many ways to source from China but it is essential to do due diligence, have a solid contract in place and manage your finance effectively

There are many ways of sourcing materials or products from China that can if tackled successfully, give UK businesses an edge. The different methods each offer a range of advantages and disadvantages.

Online: Websites such as Alibaba offer a searchable service that allows you to find suppliers for free. However, whilst ideal for finding benchmark prices, without visiting suppliers in person and seeing their facilities, it is an unreliable means of developing a solid relationship.

Social Media: Sites such as LinkedIn enable buyers to find suppliers but, again, building trust will be difficult.

Trade shows: There are a number of major trade shows such as the famous Canton Fair in China and the Spring Fair in Birmingham. Face to face meetings and seeing products in the flesh is a great way to meet potential partners and will often be worth the investment of time and money.

CBBC: CBBC provides a supplier and sourcing service where CBBC staff will shortlist potential partners, vet them and provide you with their contact details.

Specialist sourcing firms: Whilst they can offer more detailed vetting and more options, specialist sourcing firms can prove costly as they will be acting as an intermediary. 

Managing the relationship

Finding a supplier that you can work with is, of course, only the beginning. As you work together, it is important to manage the relationship that develops by being aware of key factors.

Your importance to them: If you’re only looking to source a hundred products then you are likely to be fairly low on the list of priorities for a major manufacturer. Do they have Minimum Order Quantities and can you meet them? If not, you might want to find a partner to reach those numbers. Larger orders will also often reduce shipping costs per item. And remember that if you need specific tooling or training to make your product then costs will also rise.

Importance of face to face meetings: It is essential to have a strong relationship between the two businesses and this can only be achieved with regular face to face meetings.

Quality Control: Whilst your supplier will have quality control responsibilities it is important to get an independent party to monitor your products. Any disputes will be much easier to resolve if independently verified.

Maintain relationships at several layers: By having a relationship with directors, managers and other staff you will avoid relying on just a single partner at a company, whilst having a better understanding of where the power in the relationship is held. Always keep communication open.

Putting together a contract

Make sure you have contracts in place for every stage of the process and that these are legal and enforceable in Chinese courts. Whilst much of these may be industry-specific, some issues need to be considered regardless of what you are importing.

  • Will you have exclusivity on the design or a specific range?
  • Who owns the moulds and tooling?
  • What is the warranty period if a product breaks?
  • What percentage of faulty goods is acceptable?
  • Who is liable for faulty goods?
  • Ensure that the port of delivery is specified
  • Always ensure your trademarks and IP are protected and that you have your trademarks before you start manufacturing in China.
  • Getting professional legal help at this point is essential.

Arranging payments

Ensure that payment terms are clearly expressed in any contract. The supplier will want a percentage paid upfront so don’t expect them to take on all the risk.

Payment can be complex when dealing with exchange rates and overseas transactions, and companies like Ebury can arrange international payments whilst handling currency exchange risk. They also can provide trade finance, helping you out if, for example, you have orders of £500,000 but only £100,000 in the bank.

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