- Sourcing in China in 2020
- New Foreign Investment Law
- Social Credit System
- Will the Shanghai Import Fair make a dent in the China trade surplus
- Scandic Sourcing's Shanghai Office is Hiring!
- China's new cybersecurity law
- 6 tips to avoid problems with your Chinese suppliers
- Register your trademark in China before someone else does!
The most efficient way to ensure safe and sound working conditions among your Chinese suppliers is to employ a Code of Conduct program monitored and enforced by third-party on-site inspections.
Despite soaring labor-wages, China has enduring strengths as a manufacturing base for Western companies and remains a very attractive place to do business. However, social responsible conduct among Chinese suppliers has not kept pace with the economic progress. Fact is that labor right violations is so common it can be assumed to be taking place if not proven otherwise. The solution: research shows that factories operated by Western companies that employ a Code of Conduct program tend to have few violations.
The benefits of its flexible work-force, well developed infrastructure and low cost manufacturing make China an attractive destination to outsource manufacturing and production. In 2013 alone, a record $117.6 billion in foreign direct investment (FDI) flowed into China. The growing Chinese domestic consumer base is also a mouth-watering target for many a Western executives. Yet in the frenzy of lowering production costs and outsourcing production to China, the fact remains that many Chinese suppliers offers less than substandard working conditions for its workers.
Causes and Scandals
China has a substantial labor law in place that promises workers a five-day, 40-hour work week, guarantee, a set minimum wage and overtime pay for working hours exceeding 44 hours a week, as well as restrictions on overtime to 32 hours a month. However, as long as the Chinese suppliers keep competing in price – and as Western buyers are pressured to find the quickest delivery times to the lowest cost – violations at the factories are bound to take place. In fact the non-compliance to the Chinese labor law in China is so widespread, it can be assumed to be taking place until proven otherwise. The situation is also in-part caused by the Hokou-system which excludes migrant workers from the urban welfare system when they move to other provinces (some 150 million workers were employed outside their rural or urban township as of 2009) – in effect creating a working class that is easy to abuse. This creates an environment where workers rights are far from a priority for the factory management. A notable example is the Iphone-manufacturer Foxconn, where the 70-hour workweek supervised by its Taiwanese military style regime led to 13 suicides among its workforce between 2009 and 2010.
More information on Code of Conduct
A 3d party Code of Conduct with regular audits and monitoring can efficiently counteract draconian management or substandard working conditions at your Chinese supplier's plants. The benefits bringing your suppliers to adequate social standards have a multitude of worthwhile benefits beyond the mere moral aspects.
Research shows that having a clear Code of Conduct program in place, adapted to be compatible with Chinese conditions can significantly improve working conditions among your supplier’s labor force. The benefits are many and are not merely moral benefits – suppliers who cannot comply with simple Code of Conduct requests are usually “bad apples” that can have a harmful effect on your entire chain of operations. If one of your suppliers cannot for instance place a proper fire exit sign by the emergency exit, what else will they give you trouble with down the line?
Codes of Conduct serve to weed out the high-risk suppliers and thus reduce the risk and fragility of your supply-chain in China. It also increases transparency and makes you more aware of the real state of your supplier’s operations. Suppliers that show a willingness and a capability to comply with a Code of Conduct are often also reliable in others aspects of its conduct – including producing goods on deadline and delivering adequate quality in a safe and sound way. The process of establishing the Code of Conduct program also serves to strengthen your relationship with the supplier. This has a number of benefits to ensure the long-term stability of your supply-chain out of China. If you are working in China for the long-term, a Code of Conduct is a small investment that can potentially save you millions in operating costs.
Scandic Sourcing’s Code of Conduct Program
Scandic Sourcing has developed a Code of Conduct program in accordance with ISO 14000 and the UN Global Compact that won the Swedish Chamber of Commerce 2012 award for innovation. It works to gradually bring your supplier pool up to the standard required by your home office. The program is adapted to not clash with Chinese local laws and regulations, and will be enforced by factory audits and monitoring systems. The starting point in Scandic Sourcing’s approach is that most factories are not violating international norms and Chinese laws deliberately, but rather from a lack of knowledge. Engagement, education and encouragement are key tools to raise awareness among such suppliers.
Scandic Sourcing has developed a new Procurement Solution on a subscription basis. For a monthly sum, your company gets a package of procurement and supplier management services to ensure that your supply chain in China runs safely and without interruptions.
Scandic Sourcing evaluates your supplier pool to identify potential risks and prevent interruptions in your supply chain. 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 suppliers organisation 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 organise the bidding process for new orders. We also do continous research to keep you updated on the cost structure for your industry in China, including raw material /material costs and market price.
Scandic Sourcing can be the partner in China you can trust; it doesn’t only save you regular trips to China or having to station employees here, but also makes sure your supply chain is managed cost-efficiently and that it is stable and risk free. The subscription service also includes reduced rates on our regular services such as supplier searches, field audits and supplier code of conduct programs.
Our Procurement Solution includes:
Supplier Search and Development
Updates on market prices
General price requests / RFQ process
Support with price negotiation
Delivery schedule control
Review of QC records
Maintain supplier database
Our Services options are Shared or Dedicated resources depending on the scope and size of your operations and supplier pool in China.
Scandic Sourcing paid a visit to Predire Quality Testing Technologies' test facility in the district of Jiading in northern Shanghai. Scandic Sourcing helped Predire start up their operations in China. One year later we meet and have a chat about the car industry in Jiading, and how things are going for Predire.
Predire is a family owned accredited Test Institute mainly for the automotive industry, founded in 1995 in Svängsta, Sweden. Currently, Predire has test facilities in Germany, Sweden and as of 2013 in Shanghai, China. Predire's expansion to China was assisted by Scandic Sourcing who provided start-up services by sourcing a suitable location for their test facility and also handled Predire's company registration process in China.
How was the process of setting up your test facility here in Shanghai?
"We came here empty handed with no guarantees, just my expectation to quickly acquire customers – so the whole process was at times a bit nerve wrecking. But it was a calculated risk, and it is now finally starting to pay off, as we have already received projects until next year. Many other big potential customers have also shown a lot of interest in us, so I am increasingly positive about our future here in Jiading".
Johnas Rundgren and one of his test-engineers in Predire's main test hall.
Currently, Predire have installed two big chambers in the main hall, one chamber big enough for a complete vehicle, which can simulate almost all natural conditions in the entire world, incl. aging of mechanics, car panels and installations. "Ageing means checking how well a part or system will work, look & react not now, but several years into the future", Johnas Rundgren explains. "Quite recently, almost 8 million cars had to be recalled from several automotive OEM´s due to failing airbags from a sub-supplier which had not performed adequate aging tests. Needless to say, a recall is both expensive and can have a great negative impact of a brand, something that all car manufacturers want to avoid – that's why you need firms like ours with this kind of equipment. It´s not enough for a car and all its systems only to look & work perfect directly after being delivered - It also needs to keep the quality and be safe to use for several years in the future."
Right across from Johnas office window in Jiading district in northern Shanghai, is Volvo's latest gigantic R&D facility being constructed. It is the second of its kind in the world; the first being located in Torslanda, Sweden.
Why did you choose to locate your test facility in Jiading?
"Jiading has developed into a R&D center for car manufacturers and sub suppliers. This development was partly engineered by Jiading officals who co-funded Volvo-owner Geely in return for the latter placing their R&D center in Jiading", Johnas explains. "In addition to Volvo; Volkswagen, FIAT, Autoliv, Magna Steyr, Brose and other major players have operations here", Johnas says. "Which is also what I found when doing my initial research when deciding where to locate our test facility.
I see camouflaged cars of all brands going by my window almost every week", Johnas says. "Those are new car models which have not yet been revealed which are being tested in secret around here in Jiading. For car buffs like me, that's not only cool to see, but it indicates we choose exactly the right spot".
How would you describe the process of starting up your company in China this far?
"It has been a bit of a struggle at times to get everything in place, including issues we never encountered before like bribery situations and really tough negotiating situations, but overall I feel that we have fared well and now finally everything is in place. I have been really consistent with keeping everything 100% honest and transparent. The company culture here is very different – a lot of it does not at the outset seem to make neither common nor any practical sense.
A lot of the times it has been good to have Scandic Sourcing there as a guide in those tricky negotiating situations where nothing in our own experience, nor even logic is there to guide us to a decision; I think only experience of doing business in China can help in those situations. The after-service from Scandic Sourcing has been a great support to have – a friendly voice a phone call away for some quick guidance whenever that has been needed from a knowledgeable and experienced partner. I'm happy I used Scandic Sourcing as a way to establish Predire in China".
Per Linden, CEO of Scandic Sourcing was recently interviewed by a Swedish welding magazine. Here is a transcript of the interview.
Can Chinese welders follow EN 1090 and ISO 3834?
Many of the bigger and export-driven companies have experience of that. But you should keep in mind that the Chinese welders have their own standards that they are trained to follow. Using foreign standards with your blueprints is not automatically going to ensure a good result – in fact it's rather the opposite. It would be better to define the correct Chinese standard; then you can have a greater assurance of compliance to the standards throughout the supply chain.
A CE-certification can mean an expense in the $10 000 range. If that's calculated into the budget, then there's no problem. All international certification-companies are here in China and can arrange that.
How is the status with Chinese WPS and welding certifications EN 287/9606?
Certified welders are required to do tests every year according to Chinese standards. It is possible to get European standards at some suppliers who are certified or are willing to do that. The tests are similar.
How does it work with the oversight with welding? How does the self-monitoring work?
It varies and you have to control how the supplier works. Self-monitoring is more unusual; the standard is to still have separate monitoring departments.
Are there certain businesses or products that are more interesting than others?
Welded products are suitable for production in China if it contains a minimum of welding that offsets the extra cost inferred by transports and monitoring. You have to keep in mind that a Chinese welder costs $500 – $1000 per month. Lately, the steel prices have been very favorable; the steel industry in China will have overcapacity for a long time ahead.
What do you think will happen in the long run?
I hope that we one day can get a harmonization of EU and Chinese standards. It would greatly facilitate communication for International orders. Meanwhile, my recommendation is that it is both easier and more responsible to have a Western engineer understand what Chinese standards are applicable rather than sending blueprints to a Chinese supplier knowing that but a few Chinese welders will have ever come across Western standards before – most of them have no access to it. Western companies should keep in mind that there's so much construction going on in China today that most new bridges, railroads, cars and machines in the world are made using Chinese welding-standards, not Western.
Tina Damsgard is a Co-Founder of Little Mermaid; a Danish branch of the Danish hot-dog company “Trosborg Event”. The start-up company is currently working on establishing hot-dog shops in prime locations around Shanghai to build their brand on the Chinese market. Little Mermaid is currently using Scandic Sourcing’s Business Support Office to handle their administrative needs in the start-up process in China.
Why did you decide to go to China?
I wrote my master’s thesis about cost-efficient business solutions in China. I visited Beijing, Shanghai and Qingdao, and saw the potential of entering this booming consumer market.
Why did you choose Scandic Sourcing?
I came into contact with Per Linden (the CEO of Scandic Sourcing) during an event in Shanghai and we started talking about my company and our start-up in China. He told me about Scandic Sourcing’s Business Support Office services and it seemed like a great solution to getting started fast in China. We found that it was the most cost-efficient solution for start-ups where you could get all the fundamental things our company needed for a fair price.
What services did Scandic Sourcing offer?
We use Scandic Sourcing’s Business Support Office service for HR services, Back Office, administration, office space and recruiting.
How would you describe your experience with using Scandic Sourcing’s start-up services?
One of the best things was that when we arrived in Shanghai we immediately came to an office where there were people that we could ask about specific issues relating to China. Entering the Chinese market as a young entrepreneur can be a daunting task, and it was quite comforting to have other people around at an office to talk to and to ask questions and get advice. The expat community in Shanghai is very helpful; but you definitely need a base when you arrive to start from somewhere, and Scandic Sourcing provided that.
What is your advice to others who are thinking about going to China?
I guess you can read too much literature about China before coming here, and that can lead to making too many assumptions beforehand. I actually suffered from that a bit because I wrote my thesis about cost-efficient business solutions in China, so I studied a lot about Chinese business; also in terms of social behavior etc., so I was a little colored by my own presumptions before coming here. I think it’s good to have some basic knowledge of do’s and don’ts in China but still arrive here with an open mind and make up your own opinion rather than base it on sometimes subjective and outdated information.
Patience is also an important trait to have in China, because most things have a tendency to take a bit longer than what might be expected. It’s also important to be super clear with instructions and the use of wording; maybe words have a different significance in China than in the West – making too many assumptions and wording things abstractly could lead to misunderstandings.
For more information about Scandic Sourcing's Services: Read more about our Business Support Office here.
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