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03oct14-andy-radovic-shutterstock-149807798-370x229On November 7, 2016, China’s National People’s Congress promulgateda new Cybersecurity Law. The law will come into force on 1 june 2017.

The Law applies to the operations, construction, maintenance and use of information networks in China, as well as administration and supervision of the network security. Any company that operates a WFOE in China are now required to censor any information that is seemed as critical or banned and are demanded real name registration for any user of services like instant messages.The new law also requires that all personal information for Chinese citizens and any important business must be stored on storage devices inside Mainland China. However, any data that is transmitted outside of China by any entity must first be reviewed and approved. The new cybersecurity law also states that no individual will be allowed to use the internet to endanger national security, spread false information that can have consequences on the economic order, maintain public interest, etc.

 

 

You have been searching online for reliable suppliers and just came across a Chinese supplier whose organization look good. You see potential for a business opportunity and decide to go for it. BUT before making any decisions you may consider to lift the lid and see what kind of organization they are and investigate further in order to avoid unpleasant surprises.

China is the largest exporting country in the world, which means there are an enormous number of available suppliers, and this is where the challenge lays. You may consider a greater number of suppliers as a good thing because it offers you as a buyer more options. However, a long list of suppliers can be a good thing but it can also mean greater risk if you select the wrong supplier for your business.

Below are six practical tips that can help you reduce your risk when choosing reliable suppliers to manufacture your product.

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1. Background Check

When you find a potential supplier online, it is a good idea to check what they claim before doing business with them. You can gather more information about the supplier by running background checks on their company. A supplier background check can prove invaluable before entering into business with a supplier. You can find a lot of information and other relevant data from various public sources online, such as bank information, credit reports and licenses. But most of that information is in Mandarin and hard to find. However, it is therefore a better idea to get all relevant information and all reports about the supplier by hiring a company or get help from a lawyer or accounting firm that are based in China who specialize in this field. By doing that you will get a better overview of the supplier and you can more easily decide whether or not you want to start a business relationship with them.

 

2. Communication

When you work with Chinese suppliers you should also problably know that there can be significant communication barriers, even with suppliers that employ English-speaking staff. But the language problem is not the only barrier when doing business with Chinese suppliers. The cultural differences can also severely slow down the development of the solid relationship that you would like to achieve. If you want to improve the communication between you and your supplier and avoid future problems, you need to understand the differences in how communication is viewed between cultures. Often, people from western cultures sees the communication only as a way to exchange information, while for most Chinese, communication is an important part of relationship building. This differences in viewpoint can often lead to barriers in communication when doing business with Chinese suppliers. However, you should always have in mind to treat each communication as a way to both exchange information and to build a relationship. It is also important to have an experienced international team in place in order to faciliate effective communication. 

 

3. The importance of quality

Don´t choose your supplier based on price only. If a factory is offering you the lowest price, then you can absolutly be sure that they are either going to get back those costs in some addtional charge, or they will use cheap materials. This can lead to poor product quality and a disaster for your business.

It is also important to check the quality of your products before the whole production is completed. It can take weeks or even months to re-work goods that are defective, and even longer if all the goods must be reproduced. If you want to be sure of the quality of your products then it is a good idea to send an inspector and perform quality inspections, to make sure that issues are discovered early and that corrective actions can be implemented on time by the factory.

 

4. Get a sample

You have been inspecting your potential supplier and the audits results are acceptable. If you really want to be sure about your product quality and verify your products conformance to standards, you can request a product sample before production starts. If all goes well and you are satisfied with the result, then you are one more step closer to placing your future orders and finding a reliable supplier in China.
Make sure to order multiple samples from your supplier in order to be sure that you will get the same standards as your final product. The supplier can make a perfect and a high quality version of your product and pass it off as a sample of the final product if you only order one or two samples. Prices for samples can vary, some offers a free sample while other suppliers gives a discount or take normal price of manufacturing the product.

 

5. Visit the factory

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To visit the supplier in person obviously won´t be an option for everyone, but it´s highly recommended and is the best way to verify your suppliers. It is common that suppliers utilize fake pictures of the company and give the impression that they are a big and reliable manufacturer. Your first meeting with your supplier is therefore a very important part of the sourcing process if you want to avoid unnecessary surprises in the future.You can also discuss directly with your suppliers when it comes to prices, delivery time, quality inspection and other important terms of your business. Your visit will also reinforce the relationship that you are trying to build and is good for your future business transactions.    

 

6. Contracts and agreements

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After months of searching for a reliable supplier, you finally found a good one that matches your requirements, and now its time to sign a contract (also called "OEM" agreement") to cement your relationship. If you want a contract that you can be able to enforce in a Chinese court of law, then make sure that the contract is drafted by a Chinese lawyer. All intellectual property that is used to manufacture the product, including copyrights, trademarks, patents should be licensed to supplier, for the purpose of complying with its obligations under the agreement. You should also carefully draft related terms in order to restrict your supplier from exercising any rights of ownership to the licensed IP. Include detailed product specifications and quality control and inspections procedures in your supplier agreement, and make sure to seek warranty from your supplier and include it into the agreement. 


 

 

 

 

 

freepik china flagIt is time to get into compliance with your labor practices in China.  

When the 2008 labor law was published it was as usual in China not fully enforced. Now, 9 years later the message from  the PRC Ministry of Human Resources and Social Security (“MOHRSS”) is to get in line or get in trouble.

These Measures are set to take effect on January 1, 2017 and will apply to all China employers, domestic and foreignSo if you have employees or an operation in China and you have not already done so, now is the time to check that you are in full compliance.

Your local labor authorities will have the task to investigate all employers and rate them on an scale which will decide further inspection frequency.

Important criteria includes if there is an HR manual in the company defining its internal labor rules, labor contracts in place with 100% of the employees, compliance with rules on working times, overtime, female workers, underage workers and employer contributes all mandatory social insurances.

For serious violations the employer’s name, punishment and the name of its legal representative will be made public and also shared with governmental departments. China’s local human resources and social security bureaus will be responsible for clarifying and implementing these rules.
“ There are so many changes to the rules all the times that we recommend to do at least a yearly review of the HR manual. And if you don’t have an HR manual in place it is urgent to prepare one”, says Per Linden, CEO of Scandic Sourcing.
“Even if foreign companies generally comply better than many Chinese companies we can expect WOFE’s to get special scrutiny”, continues Mr. Linden.
Scandic Sourcing assist foreign companies with market entry, company formation, accounting, help to set up HR systems and act as outsourced HR directors.

 

 

 

 

 

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If you're ever going to sell your products in China you should register your trademark now. Before someone else does!

To get a trademark protected in China you need to register the trademark in China. China has a first-to-file policy on trademark registrations meaning that the rights to the use of a trademark in China belongs to whoever is the first one to register it with the Chinese authorities. Only "well known" international trademarks have a protection from this. The potential consequences of having someone else registering your company or product name is not limited to that your brand is used in commercial purpose on the Chinese market. If you ever want to sell your own products in the country you will have to try to obtain the rights to your own trademark or risk getting sued. Both scenarios of which might cause tremendous financial consequences. That's why we recommend you to register your trademark as soon as possible if you consider ever acting within the Chinese market.

Also be aware that if anyone else plan to import and sell your product in China they need to make sure the trademark is protected or risk the same consequences as mentioned above. If you as the original trademark owner doesn't protect your trademark in China, the importer or distributor is forced to do it. And it might not be in your longterm interest to let them own the trademark rights.

Registering a trademark is fairly straightforward and inexpensive and well worth the effort. Register your trademarks today!

launch of the new european parliment logoFrom 2017 around 6 000 European companies will be required to report their code of conduct activities. This includes how they work with suppliers in China and other low cost countries.

The new EU requirements about companies sustainability reporting were adopted in 2014 but are now taking effect. It affects EU companies with more than 500 employees but some countries have set lower limits. One of those countries is Sweden where the limit is 250 employees.

Environmental matters, social and employee related matters, safety, respect for human rights, anti-corruption and bribery should be covered. The reporting should include a description of internal policies including due diligence processes and also the outcome of these policies. Further the reporting should include the risks related to the matters described above and how the company manage these risks. Non-financial key performance indicators relevant for each company´s business should also be presented in the reporting.

“Few European companies have a good grasp of the actual situation at their suppliers in China and lack knowledge about the regulatory and practical environment”, says Per Linden, CEO of Scandic Sourcing in Shanghai.

Scandic Sourcing has worked for over 10 years on site in China and Asia with supplier audit programs and have developed methodology to work with continuous improvement programs for foreign companies suppliers in Asia. The Scandic Supplier Code of conduct program won the 2012 Swedish Chamber of Commerce innovation price. With new focus on sustainability reporting in Europe this becomes even more important.

 

Read more about our CSR and Code of Conduct services here

 

Also see: Invitation to Scandic Sourcing's Spring 2017 Trip to China - New EU sustainability directive and Suppliers in China