A large number of foreign companies are subjected to fraud when purchasing goods or parts from China, especially when the payments are made before the gods are delivered. Common frauds are to receive damaged and useless goods and the losses inflicted on small and medium sized companies are often in the millions.
To avoid trouble it is important to select the right suppliers to begin with; and equally important is to evaluate your supplier before doing business with them. The choice of supplier is the most important step during your purchasing from China to avoid fraud and receiving poor quality goods. Despite that, a survey from the University of Gothenburg that interviewed small- and midsized Swedish companies who are conducting trade with China showed that supplier selection is often guided by coincidence, rather than careful selection and evaluation, even among companies who traded with China for many years. This lack of evalutation greatly increases the chances of encountering fraudulent suppliers. Moreover, many Western companies choose their suppliers online or on trade shows (which many times takes place in Hong Kong), where you might in fact be dealing with a trading agent or middleman that is falsely claiming to be a supplier or factory representative. Thus, many companies add unnecessary costs via middle men who will muddy the waters and add to the margins to make a buck!
Getting the full picture of the state of your suppliers operations requires a presence in China or a reliable partner.
In China, paradoxically as it might seem, the suppliers with the best websites and flashy presentation might be the worst options; and many of the best suppliers rarely have an English website (some are still lacking a working email address!), nor do they send English speaking representatives to trade shows – you have to dig deeper to find them.
Quality Control – requires a presence on the ground in China
Trading with China is made severely more difficult by the long distance to China and the expensive and time consuming trips over several time zones required and the general difficulty of communication. To achieve the quality you want you have to specify the details of the project – often in Chinese. Fluid communication is important to get the quality you want. The best way to buy from China is to have a contact in China who can communicate with your supplier or manufacturer in their native tongue.
Many companies use Chinese sales agents as middlemen, and even though that might work in the short term, it’s far from a stable solution for your purchasing in China. According to the dissertation from the University of Gothenburg, many sample companies couldn’t even identity all their suppliers, not to mention the trading agents and middle men in the way between them and the supplier adding margins. More shockingly, many purchasing departments don’t even have a contract with their suppliers. Order placement is often handled via email with trading agents, which is not a great way to communicate (if you want to be clear about the details to get the quality you want). Furthermore, there are ethical considerations to take into account regarding not knowing who you are dealing with and what went into making the products, not to mention the huge PR backlash it could potentially lead to.
Many Western companies deal with middle men rather than directly with their suppliers when purchasing in China and does not even issue a contract.
Scandic Sourcing's Procurement Solution
If you want a safer and more reliable solution for your purchasing from China, Scandic Sourcing has developed a procurement solution where we handle your purchasing from China in a cost efficient and transparent way. Scandic Sourcing evaluates your supplier pool to identify potential risks and prevent interruptions in your supply chain and assigns a dedicated project manager. We make sure to communicate directly with the factory owners or the management to circumvent costly middlemen and third-party agents. We can communicate directly with all layers of the supplier’s organization to get you the best price and conditions and build transparent and long-term relations with the suppliers in the process to ensure favorable working conditions.
We also handle quote requests and organize the bidding process for new orders. We also do continuous research to keep you updated on the cost structure for your industry in China, including raw material /material costs and market price.