Give an inch...

(Have you read Part 1 of this article?)

By this point, the overseas purchaser has been let down dreadfully by the supplier and had to compromise their margins in order to have their goods released. But it got worse. When the CI (Original Paper Commercial Invoice) and COO (Certificate of Origin) were requested from the supplier, they refused to do even this stating that it would cost yet more money to produce these documents and therefore not worth it.

We explained that in order to export the products these documents were required from the manufacturer. This was met this time with abuse and a refusal to have anything else to do with the matter. The aggression showed by the supplier at this point was typical to a kneejerk reaction by a lot of suppliers when their back is at a wall and they have gone so far that even though they are wrong, they don’t want to lose face by admitting it or even compromising.

Luckily my time in China has allowed me to meet some influential individuals in the export and customs world here and we were able to get some documentation to push the order through customs and onto the ship for our client. This documentation was also enough to comply with import, customs and duty purposes when it arrived at its destination port. Doing it this way should of course always be a last resort.

This is a particularly cold example of how some manufacturers feel they can behave to an overseas purchaser who has little power to resolve the situation. It is, of course, incredibly short sighted of the supplier and in the long run will be sure to hurt their business. However it’s a clear sign that purchasers need to be careful and make sure all documentation is understood and in place to avoid this kind of behaviour. Unfortunately, having supporting documentation in China is not always enough, as once a manufacturer has lost interest in a client, they will rely on the fact that very few overseas purchasers would be willing to attempt legal action. Local representation and strategically applied pressure often makes the difference in these cases.

I would recommend even a brief audit of the company you intend on purchasing from for the first time (and one annually if you have large yearly supply contracts) but for some companies this isn’t financially possible. Luckily there are agencies and consultancies like Enter the Panda that utilise their existing trusted networks. Through them you can  purchase your goods, knowing that quality and integrity will be a normal part of business. If suppliers acted anything like the one above, you can be assured that this is not found with the companies we work with. In my experience this is a rare and particularly unreasonable situation, but this type of short sighted thinking and action does exist in a percentage of Chinese suppliers especially when a cheap product  or low order quantity is involved. You need to have all your bases covered to always be in a secure position.

Because we have worked extensively in China in all areas and with all types of suppliers and factories, we feel very confident in what to look out for when finding a trusted, durable and versatile supplier. There are key elements and red flags to look out for in the facility and the people that work there in order to find something sustainable and reliable for your needs. Don’t let your company get into bad situations with Chinese factories. Use an advised and trusted supplier and understand all your agreements in advance.

Somewhere between ordering and before loading onto the vessel at the port, the supplier decided to change their mind and claim that this was no longer FOB and were only prepared to pay a small courier fee to the shipping agent. Not only did they do that but they also refused to offer a Commercial Invoice and Certificate of Origin – two documents that are critical when exporting from China and importing into your own country.

The purchaser had found this supplier on Alibaba.com and had been delivered samples before deciding to order with them. They had performed the minimum amount of work required in order to make sure this supplier could at least deliver a product they were willing to pay for. As you can see, in this case it wasn’t enough.

When we got involved the shipping agent had custody of the goods and was awaiting payment for export and freight loading charges in order to release the shipment. This part is normally covered in the FOB terms. The supplier had insisted that they needed 100% of the payment before they would release the goods to send to the shipping agent. The purchaser, not seeing anything untoward, obliged by paying the remaining 70% after the initial deposit amount. The fact that final payment terms were not confirmed beforehand enabled the supplier to be able to take advantage of the situation.

On initial contact with the supplier on behalf of the purchaser, they claimed that the quote did not include the FOB terms. This was very quickly proven wrong through existing emails and the original quote. After this fabrication was unveiled the supplier changed their story to the new fact (and probably closer to the truth) that they quoted too cheaply and were making no profit on the whole order. Of course, this is where a Purchase Order and Purchase Invoice should be enough to show the agreed terms of delivery and that they need to be adhered to. Even after this was shown to the supplier, they still refused to pay. Because of time sensitivity issues and an unwillingness to deal with legal action in China by the purchaser, they found themselves in a situation whereby if they wanted their goods on schedule, then they would have to succumb to paying this part themselves despite the principally agreed terms. It should be noted that the shipping agent was impartial and willing to take payment from anyone to release the goods.

On the whole, it was a relatively small order and the FOB fees due were under 2000RMB (~EUR235) so the purchaser decided to cut their losses and pay this. I am sure the supplier had this in mind all along and had decided to cut his losses with the order and the chance of repeat business a lot earlier. This was not the end of the matter, however. Worse behaviour was to follow!

For Part 2 of this article, click here.

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.

The outsourced factory may be producing highly inferior quality to the standards that you thought you were getting, based on the initial provided samples. A factory may buy the whole order’s worth of raw materials and hire outsourced factories to fabricate it. There are a few reasons why they could be doing this – This may be as a cost saving measure. They may be trying to develop relationships or guanxi with another factory. They may not have the facilities in-house that they promised you. Or they may be bartering with your business to make use of additional factory facilities or machinery in the future.

Considering the above, ask yourself these questions:
 
- Is it important to know that the factory/supplier you are buying your products from manufacture your order elsewhere?

- Is it ok that your products are being made in a place you haven’t been told about or inspected before?

- If outsourced facilities seem to make the same quality products as per your order, does that make it ok that your products are being assembled in unknown locations?

- If completed order arrives at your destination and there is a marked difference in quality from your expectation that hasn’t been properly explained, the root cause could be an outsourced factory. Would your supplier tell you this? Wouldn’t you want to know this information?

If any of the answers to the above questions make you feel uncertain about the standards of your production in China, having a 3rd party representative on the ground can assist you. Inspecting the factory and the above aspects can help you get a firmer idea of what is really going on, allowing you to make more informed decisions.
 
Visit the official ETP website for more information on sourcing products in China.