Pandablog

China Daily - Cover Story - August 2011

The following is an excerpt from a China Daily cover story about Entrepreneurs, written by David Bartram. To view a cropped version of the original article, click the image to the right.

An understanding of the local business environment is often what is lacking from young entrepreneurs and SMEs who want to do business with China rarely have an idea where to start.

In 2007, Dave White and Shane O’Neill, a British engineer and an Irish designer respectively, spotted an opportunity to create a business that offers help to these very people.

“I met Shane and we got into a discussion about the problems foreign companies have when they come to China to do business,” White says. “We found that especially those companies on a limited budget weren’t being offered much support, particularly from the Chinese government side. “While the EU Chamber of Commerce offers a helpdesk, we found there were limits with what they could help people with. We decided we could help by actually representing foreign businesses ourselves.” Read more…

When you order samples from a Chinese manufacturer at any stage, it goes without saying that you, as the customer, expect to see a close to final product with small exceptions that only mass production can achieve.

Very often a buyer will accept that a mass production item will/should look like the sample they received. This is a fair assumption but unfortunately, more often than not, this is not the case.

If the correct and detailed drawings are supplied from the beginning, this can eliminate further interpretation by the manufacturer. If you are developing a product straight from the factory the supplier holds a certain amount of creative control over the process. This often leads to the supplier telling you what can and can’t be done in their opinion, or based on what’s easier for them in the short-term.

In my opinion samples differ from the final product because of shortcuts and interpretation of the original design. It’s a lack of clarity and communication that is unfortunately common when dealing with Chinese suppliers, due largely to language and cultural barriers.

If you want to ensure that you are getting the product you approved and expect, it is an advantage to look for ways to be represented at the factory during this process. It’s very important to get design files and make sure that the drawings you have are adhered to at all times. It’s about eliminating as many possible avenues for interpretation as you can.

Every order from then on should be checked to make sure that the product remains as close to the original approved sample as possible.

CIF means Cost, Insurance and Freight. This Incoterm (international commercial term) is also commonly referred to as DDP, which means Delivered Duty Paid to the destination port.

The supplier basically takes responsibility for the product from manufacturing, freight, customs and duty for the buyer. It normally works out a little more expensive for the buyer than if they were doing it themselves or FOB but it is an option many prefer as they don’t have to worry about the costs and hassle of the whole process.

If the buyer prefers this delivery method they should be sure to state it at the very beginning to the supplier. What normally happens is that the supplier will nominate their own shipping agent and deal with the process themselves.

Ex-works means that the product is available for the purchaser to take custody of the goods at the factory only. The purchaser has to pay for all expenses to get the goods to their destination address.

The purchaser can do this whole procedure themselves but it is highly advisable and both economically and time efficient to enact a shipping agent or freight forwarder to take care of this for them.

Payment terms for an FOB product in China can be from 20%-50% initial deposit/down payment to begin manufacturing/assembly of the product. Once completed and ready for delivery the supplier will load the product into the container (FCL and LCL) and export it to be loaded onto the container ship at the port.

The product will then be shipped to the destination port. At this point the B/L (Bill of Lading) is exchanged for the remainder of the order value. Once this has been exchanged, the product is in the custody of the purchaser or the shipping agent/freight forwarder that has been enacted.

Depending on the agreement the buyer has with the shipping agent/freight forwarder the product can be managed all the way to the buyer’s door from when the shipping agent takes custody.

Payment terms for an FOB product in China can be from 20%-50% initial deposit/down payment to begin manufacturing/assembly of the product. Once completed and ready for delivery the supplier will load the product into the container (FCL and LCL) and export it to be loaded onto the container ship at the port.

At this point the B/L (Bill of Lading) is exchanged for the remainder of the order value. Once this has been exchanged, the product is in the custody of the purchaser or the shipping agent/freight forwarder that has been enacted.

Depending on the agreement the buyer has with the shipping agent/freight forwarder the product can be managed all the way to the buyer’s door from that point onward.

FOB as explained before covers the cost of your product either until your shipment is loaded or until it has arrived at your destination port.

If it is FOB destination port, then the purchaser has to pay for:

1. Shipping Fee.
2. Customs fee at the destination port.
3. Duty on the product if it requires any (Your will have to research this or shipping agent should be able to classify the product.
4. Once released, delivery to the final destination as listed on the shipping documents.

The purchaser can do this whole procedure themselves but it is highly advisable and both economically and time efficient to enact a shipping agent or freight forwarder to take care of this for them.

If it is FOB port of loading, then the purchaser has to pay for points 2-4 as above.

As a general term, FOB means ‘Freight On Board’ or ‘Free On Board’ as it is more generally used in international shipping. This means that the seller will pay for the goods to be loaded onto the vehicle of transport.

The term FOB can be used to clarify which part of the shipment is being paid for by the supplier and which part is to be paid for by the purchaser.

For instance FOB, (port of loading) indicates that the seller will pay for the goods to be loaded onto a vehicle of transport (usually a container ship) at the initial port only. Shipping, Duty, Customs clearance and delivery to final location will be paid by the purchaser. Usually this is a shipping agent as nominated by the purchaser.

FOB, destination port indicates that the shipping fee will be paid by the seller/supplier. Duty, customs clearance and delivery to final location will be paid by the purchaser.

For a more in depth understanding of the term FOB, contact your shipping agent or get in touch with us with an explanation of the shipping situation.

Time waits for...

It is important to time and plan your orders right. If you place an order too late you may find yourself at the back of the queue for production and delivery and therefore miss your intended delivery date.

Seasonal items are a perfect example of this. Many Chinese factories don’t carry stock in anticipation of upcoming orders. They work on an order by order basis. This means that if you order too late, there may be a long queue of pending orders for production in front of you. This can seriously affect your intended delivery to market dates. In this case the old adage is true, ‘If you fail to plan, you plan to fail.

If it is a new product you intend on purchasing it’s advisable to start the research and product development as early as possible to give you enough time to make sure you have the product you need without any unwanted order urgency. This is especially true when talking about viewing and approving product samples. This is a vital step in any new product ordering and time involved can vary drastically depending on the item and factory. It is also important to consider the time and expense involved in delivering your sample from the factory to your country.

As a guideline, we would suggest for new products starting the search at least 1-2 months before you want to order them. If you are not sure when the peak production times for these items are, think about when your market needs them and deduct 3-4 months off that date.

A supporting guideline to remember is that it usually takes a normal factory 30-60 days to produce orders and another 30 days for transport. If you add in customs and further potential delivery issues, you can allow for a sensible total of 120 days from your order date before your products are ready to be distributed and sold.

There are likely many Chinese factories that can produce your item and their products will be of varying quality. However, if it is peak production time you may be tempted to go with a cheaper/smaller factory in China who promises a swifter delivery time. Make sure you check the quality of their facility and product. You can save time and money during this process by hiring a 3rd party manufacturing and QC consultancy to act on your behalf to ensure that your products will be produced to the standard you need and with the right factory.

A 3rd party manufacturing and QC consultancy company on the ground in China can also aid you to negotiate with a larger factory that has initially stated that they are too busy to deal with your order or they can find a factory of a similar quality that can do so. If there is a delivery date that must be met, they can also act on your behalf to pressure the factory on a daily basis to meet it.

It’s important to consider these points because when you need to reorder your item, you can know when to do this and be able to easily put this cost and time into your annual budget and plan. All the above can give your company better structure and smoother delivery to market for all your products.