Chinese suppliers: Do your due diligence
When considering potential Chinese suppliers, careful planning and due diligence are needed in order to protect your business and investments.
It’s very rare to hear about overnight success stories when discussing importing from China. The Chinese culture, language and market conditions are extremely different to those of Western cultures, and for those unfamiliar with them this can lead to major frustrations, as well as lost time and money.
What is due diligence?
‘Due diligence’ is the term used to describe an investigation or audit of a potential investment. It serves to confirm all the material facts in regards to a sale.
When importing from China, due diligence means making sure you’re working with the factory that’s right for your needs and can help achieve your business objectives.
Don’t jump into importing from China and spend your hard-earned money without the proper research and investigations being conducted into your chosen suppliers.
If you’re not familiar with the language and experienced in the business environment there, this process can be made easier by engaging experts in supplier due diligence, who will significantly minimise your sourcing risks. (Think of it as part of the risk management plan for your business).
There are countless stories about businesses that attempted to import from China, did not conduct the proper due diligence and were taken for a ride. Their project took months longer than expected, it cost thousands of dollars more than originally quoted and if they received the stock they paid for at all, it turned out to really bad quality.
"There are countless stories about businesses that attempted to import from China, did not conduct the proper due diligence and were taken for a ride."
Failure to perform due diligence can result in lost time and money, the failure of your project, and sometimes even business failure. To top it off, it can lead to huge amounts of frustration and anger, ending up as a bad experience overall.
Even so, China is the land of opportunity. You do stand to significantly increase your margins and profits by working with Chinese suppliers, as long as you plan, plan, plan.
Want more articles like this? Check out the business startup section.
Proper due diligence gives you confidence that:
- Your intellectual property is protected and you are negotiating with suppliers that can be trusted and have proven their integrity and honesty,
- Trading terms you’ve negotiated in terms of shipping and payment will be complied with, and
- The quality of the merchandise you’ve ordered will be of the standard you require.
Due diligence needs to be conducted on each potential supplier. Your audit should include the following criteria, plus others that may be specific to your industry:
- Authenticity: Is the supplier genuine? Do they really exist?
- Regulatory requirements: Are they abiding by all relevant laws and regulations?
- Social and environmental responsibility: Do they treat their employees fairly? Do they meet their environmental responsibilities?
- Longevity: Have they been around for a long-time or are they new?
- International experience: Have they exported internationally before or do they only sell to the Chinese market?
- Track record: Do they keep their promises?
- Owners and employees: Who are you dealing with and what type of people are they?
- Price: Can they compete on price? Will they give you the cheapest price but provide inferior quality?
- Capacity: Do they have the capacity to fulfil your orders now and as your business grows?
As you can see, due diligence is extremely important when importing from China – especially if you want to sleep at night! Have you had any good or bad experiences dealing with Chinese suppliers? Please share them below.