For many Australian companies, China remains the prime sourcing destination. China’s effective control of the COVID-19 pandemic has also led global customers to divert their orders from other Asian countries who are battling delta outbreaks and struggling to keep the supply chain going. For the foreseeable future, China’s title as ‘The World's Factory’ will hold strong.
But sourcing in China can also come with challenges. It is important to identify issues early to help your business avoid expensive mistakes.
Here’s what you need to know.
Manufacturer or trading company?
Most Australian companies sourcing from China request to deal with factories directly rather than trading companies. The reason is simple - a trading company charges higher margins as they take some mark-up over the factory price.
Engaging directly with a factory could also give Australian importers more control over their products as they are the manufacturer of the goods.
However, the services and value of trading companies are often ignored. A good trading company is often easier to deal with than factories as they are usually willing to go the extra mile to meet your requests, while factories are reluctant to do so.
A good trading company should also perform some level of quality control and customer service as a part of its role. What Australian businesses should avoid is trading companies that solely buy and resell with no value-add services.
Finding a reliable supplier is the first crucial step in sourcing from China. It does take a lot of time and effort, but this research is vital in order to save time and money in the future.
Expect the unexpected
From sampling to the shipment of finished products, the sourcing process can easily take months to complete. During this period, unexpected events can occur. It is important that Australian companies carefully prepare contingency plans to ensure impromptu obstacles do not derail your operations.
Here are some common scenarios that may arise unexpectedly when sourcing from China.
Western companies often experience sudden price increases from Chinese suppliers after a sample is made or before they place a second order. The buyer then often feels deceived and starts to question the integrity of their suppliers.
The price increase is usually caused by the following reasons:
- Raw material and shipping cost increases. Commodity prices and international shipping fees have become extremely unpredictable since the COVID-19 pandemic began. Shipping costs, for example, have gone up at least five times compared to pre-pandemic prices. Due to COVID-19, the price increase in raw materials and shipping costs must be factored into a supplier’s fee as it is now significantly affecting their financial bottom.
- Poorly prepared quotations. Some Chinese suppliers see their quotations as a guide only and don’t thoroughly analyse customer specifications and detailed requirements. Instead, a rough estimate is often provided to overseas customers. Clear and detailed instructions are important when first communicating with suppliers.
- Low quotations to gain business. Chinese suppliers will often offer lower-than-market-rate quotes to bring customers in. Once the customer has reviewed their products and is happy, a supplier may adjust the quote and hope the customer will stay. This is quite a common tactic in the Chinese business environment.
While China’s "zero tolerance" policy on COVID-19 has enabled the country to remain safe, it has also come at a cost to business. Local governments usually bring the whole city to a halt when even a small outbreak is discovered.
Movement of goods becomes highly restricted which creates chaos, particularly in terms of transport and logistics. Your order may have been ready to be dispatched, but suddenly becomes stuck and unable to be sent from the factory warehouse to the port for weeks.
Quality requires the most attention
Quality assurance can be the biggest headache for many Australian importers when sourcing from China.
Samples may appear to be of good quality, but finished bulk-products can be received substandard. It is often more expensive to send the goods back than to have the issue fixed.
China has many quality and professional manufacturers, but they may be either expensive to work with or require higher minimal order quantity (MOQ). Therefore, many Australian companies may have to engage some smaller manufacturers in China to achieve their goals.
It is important that you closely monitor the whole process and include all the requirement details of your order in the contract.
Language barriers can be a challenge. It is important that Australian companies try to give Chinese suppliers the best possible chance of understanding their requirements and expectations from the start of the project. This needs to be done in writing, but certainly not in a lengthy and complicated email or document.
Here are some useful tips:
- Keep emails and other written documents simple and concise with plain English
- Use bullet points or checklists if possible
- Keep the information consistent and in the same format
- Test supplier’s understanding by asking them to explain important details
- Ask open questions so that suppliers can’t answer with only ‘yes’ or ‘no’
- Use WeChat or phone to assist with progress follow ups.
Suppliers should also be given information such as delivery schedules and warranty expectations.
How we can help
Is your business looking at sourcing from China? The Victorian Chamber is here to support you on your journey.
Successfully sourcing from China requires an in-depth understanding of the country’s cultural business practices and industry networks.
With a representative office in Shanghai and strong relationships with major chambers of commerce across China, VCCI’s China sourcing support team will ensure you avoid potential pitfalls and expensive mistakes so that you can focus on your customers and grow your business in Australia.
Our China sourcing team has many years of experience in assisting Victorian companies to locate products, components and inputs from China. We have a thorough understanding of the Chinese manufacturing industry and have unique insights on the strengths and weakness of Chinese suppliers, as well as the best ways to work together.
With our strong chamber networks and local industry knowledge, we are well placed to help you identify reputable manufacturers and achieve your sourcing objectives.
VCCI China sourcing support services include:
- Supplier research and identification
- Supplier verification and factory inspection
- Quality audit and inspection
- Freight and logistic assistance
- Bespoke services required by clients.
Contact us: To find out how Victorian Chamber can best support your sourcing from China process, please contact: Eddie Zhao, Phone: 03 8662 5234; Mobile: 0401 695 147; Email: firstname.lastname@example.org.
Register now to attend the world’s largest trade fair
The Canton Fair is a ‘must go’ trade exhibition for businesses who deal with China or want to expand into the Chinese market. It offers game-changing business opportunities as one of the few trade shows in the world that features a wide variety of products under one roof.
Due to COVID-19 restrictions, this year's Canton Fair will be held as a virtual exhibition for the first time in its 64-year history, from 15 to 19 October 2021. The silver lining is that the trade exhibition will be more accessible to business than ever before as you can attend from the comfort of your own office or home.
Click here to register for the Victorian Chamber’s free information session (Monday 18 October) to help businesses seize the many opportunities that the Canton Fair presents.
Attendees will also have the opportunity to listen to the Victorian Chamber’s expert trade advisors for tips and advice on souring products from China. You will also receive market intelligence on Chinese industry clusters and have the opportunity to ask questions directly to a Canton Fair organiser and industry representative.