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Reducing Import and Manufacturing Risks when buying from China or Asia

Manage risk when buying in China

Introduction

In the last 20 years, international trade have tremendously increased between Asia and the rest of the world. Today, a huge community of importers have grown and trade have accelerated. With the opening of China and the direct access of millions of potential manufacturers, it is “easy” more than ever to access potential sources. However it also expose buyers to more uncertainty and more risks.

This article will explain why international buyer are facing risk when buying from China or Asia

A./ Why Buyers take Risks

1./ Time

In Life, time is everything, and in business time is money. It is consumable, it flies and you can not catch it back. Ubiquity is still not existing so you can not divide yourself. In the same time, your time is probably more costly than time of some other people. How costly is your time ? Do you value your own time 100 USD/ hour or 500 USD /hour ?

Buyer often neglect to implement the right procedure because they don’t have time to do so. They usually take the time to do so only once problem happen. If you don’t have time to control quality by yourself, then you better buy time of other to do so.

When a client book an inspector from Asia Quality Control, they no more than just buy time, location and experience from other. Our services start at USD 288 per man-day (8 hour): this is 36 USD/hour and people allocated to do those job are specialized in doing it, they know all the tricks, and are very concern about making sure our clients are protected.

2./ Distance and jetlag

If you are located far away from the manufacturing facility producing your items then it may be difficult to keep an eye on it to reduce failure risk. If you are not in the same time zone than your manufacturer it might even be difficult to keep in touch with them. Distance and jetlag are two enemies of the buyer making him neglecting the importance to keep control on its vendor.

The world is now globalized, communications ways are improved but still teleportation is not existing: you can not be in two places in the same time and if you are located out of Asia and need to keep an eye on your manufacturer then you have no choice than having a trusted people to take care of your order the same way it is its order.

When a client appoint Asia Quality Control for an inspection in China or in any other asian country, they buy our network of inspector who are located close to their manufacturers.

3./ Knowledge

Very often, fresh buyers want to do well but they don’t know how to do well. We a have bunch of clients who are small companies: they miss import experience and the knowledge about to optimize their operations and how to reduce risk. Import operation is a not necessarily easy process at the beginning and it takes time to learn all the tricks. Nobody get born with knowledge and this is extremely important to learn .

If you are one of those buyers who don’t have a lot of experience with Asian import, then don’t feel shame to ask and to let know your situation as early as possible so we can advice you about the best practices.

When a buyer perform a quality inspection in China or anywhere else in Asia (India, Bangladesh, Pakistan, etc…) with Asia Quality Control, they leverage our experience to fill the gap of knowledge they miss. We are here to help our customers to make their import successful.

4./ Cost

Sending inspector to verify a supplier can sound costly in some certain situation and on a short term figure reading. For example, if the order amount is relatively small (let’s say 10 000 USD), then inspection cost may be slightly significant. It looks true on a first point of view, but it is not as high as expected when problem happen.

On a first view, the cost can dissuade some buyers to perform some quality control in China or Asia, or to engage in supplier audit, but if you compute well and put in the balance the risk reduction versus what you pay for, you quickly understand that it worth it.

A quick computation:

your order : 10 000 USD (this is very small order)

the cost of an inspection : 288 USD

Full risk taken = no inspection done = 0 USD

Risk considerably diminished = at least one inspection done = 288 USD

Cost to reduce risk on the total amount of the order: 288/10 000= 2.8% of the order value, if your order is 30 000 USD, the cost to reduce the risk of having quality issue is 288/30 000 = 0.9%

Now, imagine you saved 288 USD an got 10% defective in your production, it will affect 10% of your 10 000 USD or 10%of your 30 000 USD, which make 1000 USD or 3000 US

5./ Over confidence

Quite often, some buyers are overconfident in their supplier capability, honesty and reliability. We see too much buyer who believe business practice in Asia are same than in the west. They think that because they are themselves honest, fair and reliable, their manufacturers will be the same.

The disappointment reach its paramount when they discover their own ethics is not at the same level than their supplier.

Some buyers are also over confident with their suppliers because they get blinded by the apparent friendliness of the supplier BEFORE fund are sent.

Whatever friendly or kind your asian supplier is, always keep the guard high, and assume unless expressively proven that your manufacturer is more concern by his own interest than by yours.

B./ Why Buyers are Facing Risks When Buying from China or Asia 

1./ Payment terms

Why the risk is existing when doing import from Asia. It is mostly due to the payment terms imposed by manufacturers. Most of time, in international trade, payments are partly or fully made prior delivery. Rarely suppliers accept payment after delivery. It means that you are paying first for something you don’t get in hand yet. In short: if you do so, you may discover issue only once goods being received at destination (after X days of shopping by see or by air).

Then ask yourself what is your power to be compensated. Often, once the fund have transited from one hand to the other, it is very difficult to get it back or part of it. At best, you will need to enter into endless negotiation and you will end up with a discount on your next order.

Payment is one of the main leverage to vendor to be heard. As long as you have power on payment you will be listen and heard, but once the payment is released, it is rather difficult to be heard. Unfortunately, at some point you will need to release payment to get your goods to be shipped or to start an order with a new supplier. Before wiring some money, why not controlling quality in China, audit vendor in Thailand to reduce the risk to pay for something you don’t want.

With Asia Quality Control and its inspection services in China and Asia, you can link and tie your payment to the result of an inspection. Again, for as low as 288 USD you can reduce your risk to pay for something you don’t want.

Think it this way:
– You are interested in starting working with a new supplier in China. Your potential order is 10000 USD and this supplier ask for 30% down payment. Instead of risking 3000 USD to wire and see what’s come out in the end, why not protect those 3000 USD by doing a supplier evaluation costing 288 USD to perform a background check of Chinese manufacturer. You would be amazed about how much you can learn about a Chinese vendor with just a one man-day visit.

– You have placed an order with a Chinese manufacturer and your order is ready to ship: your vendor is asking for balance payment (usually 70% of the total PO amount, in this case it would be 7000 USD), why not protecting those 7000 USD with a pre-shipment inspection in China for 288 USD.

 

2./ Jurisdiction

Thinking about the legal way to get back some cash ? Have you heard any foreign company winning a court case in Asia ? We don’t say it is impossible but it is usually long, costly in lawyer fees, and has potential to be unsuccessful (remember you are not at home, and in Asia not everybody is equal on the law eyes).

It is good to have a properly written contract in place to prevent your vendor to take too much freedom on its acts, but it is always more powerful to keep power with payment.

 

C./ What Solutions to Reduce this Risks

So finally, what are the solutions to reduce risks when buying in China or in Asia

1./ Negotiate better payment terms

If you success to negotiate payment terms to pay after delivery, then you have full power and in this case, the risk is for the vendor. In so many years of experience, we have rarely seen vendor accepting payment after delivery and never on first order (the riskier one)

2./ Be on site

If you can afford to stay on site the whole production time then you have good chance to avoid import and manufacturing risks, and then you have to change your job to become a production manager or a quality controller

3./ Have leverage using tools

This is what we talked about earlier: use payment and control together to show your vendor that you are under control and ready to block payment if the result is not what you are expecting.

D./ What Tool can be Used 

Asia Quality Control offer a wide range of check point (audit, quality inspection) that can be used to keep control on your supplier and to reduce import and manufacturing risks. You can protect a deposit with auditing prior deposit payment and you can inspect quality before paying the balance of your goods.

1./ Protecting a deposit payment

a./ The main risks

Below are the main risks a buyer may face when performing a deposit payment:

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