Mistakes to Avoid when Working with Businesses in China

  • March 18, 2019

Working with China for your goods as a supplier can help you to save money. However, you must go about it in the right way or you can end up with a mess on your hands. There are common mistakes and pitfalls that can get your US business into trouble and prevent you from thriving. Understanding them from the start can help you to avoid them.

The impact China offers for US based businesses can’t be ignored. It is hard to overlook the ability to get the creation of goods in China for such a cheap labor price compared to the cost of it in the US. This can help a business lower overhead cost and provide their products for less to those within the US. There are wonderful opportunities with Chinese entrepreneurs as they see the value it offers for them as well. Yet there are concerns that have to be addressed to avoid problems later on.

Using the right approach, it is possible to look out for such issues so they don’t become a challenge for your own business. It is possible to work well with a Chinese company to get your goods created to sell in the US. It doesn’t matter if you are a small or large company, the right tactics are going to help you to be successful!

Create your Strategy

You should never work with any Chinese business and just hope for the best. You need to have a clear strategy and you need to make sure you don’t cut corners. You need to explain what you need and verify they can provide it. You need to take your time to find the best supplier possible for your needs. The time you spend evaluating them and narrowing it down can make a world of difference in regard to what you end up with. Some areas you need to evaluate for comparison include:

  • Delivery time
  • Functionality
  • Price
  • Quality

Finding the Best Supplier

Take all the time you need to find the best China supplier. You should learn all you can about them. There is a wealth of information offered on the internet. Check out their websites and their social media accounts. Read feedback from other businesses in the US too and find out who they use. What has their experience been?

Taking your time to verify the right supplier can help you to make a connection that you can count on. They need to offer you overall value, not hassles. Find out about the methods accepted for payment. Inquire about the quality standards and the methods of quality control that would be implemented should you hire them to create your products.

Standards to Hold your Suppliers to

You should never compromise when it comes to quality. The China based businesses you work with represent you. You have to feel confident they will follow through with what they offer and you can be proud to stand behind those products. You will have upset customers and they won’t make future purchases if they quality is lacking. Your goal is to make sure you get customers to return time and time again.

Can they keep up with your production capacity? When your business is just starting out, the China based supplier may have no trouble doing so. However, as your business grows, do they have the ability to keep up with the increased demand for production ongoing? If they are producing more for you, does that diminish the overall quality of the finished products? It is wise to look into such concerns before you hire them.

All of the safety and quality regulations you require need to be put into writing. The Chinese company needs to reply in writing how they will meet or exceed those requirements. Such documentation is going to help reduce the risk of problems or any disputes between your business and theirs in the future. Here are some items to consider when you look into the standards of such suppliers:

  • What quality standards are in place they have agreed to in writing?
  • What is the production capacity?
  • Where in China are they located? Is it close to a major city? Is shipping the items out of there going to be easy?
  • What is the price range with a given supplier?
  • What types of communication do they have in place?
  • What methods of technology will be implemented into the production process?

Verify Performance

Dig deeply into the background of any potential supplier in China. Due diligence has to be verified, and if it isn’t, you need to look for someone else to create your products. You don’t want to be taken advantage of or scammed. This can harm your business and ruin your reputation. Do all you can go gather information and verify performance. Some elements you should look at include:

  • Check reviews from their other customers.
  • Talk to them over the phone to get your questions answered and to confirm what they are willing to do for your business.
  • Verify they are registered and certified. You can use the platform Alibaba to help you find out about such credentials
  • Obtain a copy of their license from the supplier. This will have their business name, address, and other information on it. This is an official document and if they don’t have it or won’t give you a copy, that is a red flag you don’t want to work with them.
  • Verify they are registered with the local government. They need to be registered with the AIC (Administration for Industry). You can get accurate information on a Chinese business by visiting an AIC office. You can also hire legal representation in China to do this on your behalf.
  • Visit with suppliers. It does take time to travel to China, but it can be well worth it. This gives you a chance to meet with potential suppliers one on one. You can talk to them, you can tour their facilities, and you can get your questions answered. You can schedule appointments with several possible suppliers during the same trip to maximize the value.

Protect yourself with Quality and Payments

When you work with Chinese suppliers, you must protect yourself in regard to both quality and payments. Such transactions are going to take place on an International level. How will you get your money back should there be any type of dispute between you and the supplier? You don’t want to risk losing your money.

There are several actions you are encouraged to take that will reduce such a risk. They include:

  • Choose a payment method that is deemed safe for International transactions. They include escrow services or a line of credit through a bank. Avoid any type of wire transfer or the use of a credit card for payment.
  • The level of quality you demand with the products needs to be clearly defined. It also needs to be agreed to in writing by the Chinese provider. The document needs to clarify you can get your money back if the quality is below the agreed upon standards.
  • Your initial orders for goods should be small. Pay for them and see what you get in return. If the quality is there and they are delivered on time, you can increase your orders over time. It is a good idea to have a probationary period in your legal documents. Should you not find it is working out to deal with that supplier in China,  you can end the relationship at the end of that probationary period without any issues.
  • It is a good idea to have more than one source for your goods in China. Should you find one provider suddenly stops meeting the demand, they are offering poor quality, or they want to increase the price you will have other options. You won’t be backed into a corner and at their mercy.

Always get it in Writing

Verbal agreements are going to get you into trouble with any aspect of your business. Always get the information in writing when you work with a Chinese supplier. Make sure it is very detailed and all involved parties have signed it. Any changes or additions alter on will be amendments and require additional signatures and dates to keep them current. You need an attorney to read through it that understands the laws both in the US and China. Keep in mind, the legal structures aren’t the same in both countries!

Your written contract must contain the following to reduce the risk of problems:

  • Arbitration clause
  • Attorney fees
  • Choice of law
  • Dispute resolution process
  • Liability should a party be found to breach the contract
  • Names of all parties involved
  • Payment terms and method
  • Terms including price and logistics
  • Quality control details

No Attorney Involved

Never assume the contract is valid. It may not hold up in a court of law! It is far more complicated with International contracts. You need an attorney to review it and to regulate it. They need to be seasoned in regard to the laws in both countries. They can help you to go through the information and create a draft for all to review. They can also help with the negotiation process so the final contract is agreed upon by all parties and signed.

Such an attorney should be there to discuss any problems with you too. Should you have an issue, they can be part of the arbitration process. Their goal is to help you find a resolution all parties can agree to and get the relationship back on track. They can also help you to gain compensation if the other party is in breach of the contract.

Unaware of FCPA

As a business owner, you need to be well aware of FCPA. Your attorney can help you with this as well. FCPA stands for the US Foreign Corrupt Practices Act. You never want to get yourself into legal trouble due to:

  • Anti-monopoly regulations
  • Business deals
  • Commercial laws
  • Labor laws
  • IP Regulations
  • Trademark laws

A lack of information on your part isn’t going to get you out of trouble if you don’t comply with FCPA. You need to be very careful with gifts you offer too. You may have been told it is proper etiquette to bring a gift when you work with suppliers in China. However, there can be a thin line between what is deemed as a gift and what is considered to be bribery. This is especially true if there are any foreign government officials receiving such gifts.

No One Speaks Mandarin in your Business

Communication is key for any business relationship to work. You need members on your team who speak Mandarin very well. They can help to translate information and to share details back and forth. It is vital that you don’t have a language barrier in the way between you and your supplier. You can’t guess what they are talking about, you need that information clarified!

Never assume the Chinese based company will have staff who can speak fluent English. If they do, that is great, and you may be able to avoid the Mandarin requirement. However, it can be a great relationship if you can offer that to them. You should have people on your own team that speak it though rather than trying to rely on interpreters.