Pre-Selecting a Manufacturer in China

August 31, 2009 · Print This Article

Recently, I’ve read some posts and articles regarding trust or lack of trust in Chinese business partners. Trust can be seen as the expectation of honest and co-operative behavior. How do you know who you can trust? It doesn’t help that contracts in the west and China are seen quite differently. A written contract in the west is a legally binding document, just like in China. Though, in China, it is very common to renegotiate terms, in fact a contract more often mutates into a summary of intentions.

Luckily there are steps you can take to figure out where to place your trust.

1.    Who is it you are dealing with?

Ask your potential supplier to send you the copies of the official business registration documents. Immediately it becomes obvious if the company you are dealing with is officially registered or not, and what business scope was registered (manufacturing, trading, other). The business registration document must be renewed every year. The tax office confirms the successful renewal with an official stamp of the current year.

The company registration number is made up of 15 digits. A company that applied for registration, will receive a preliminary registration document, which has 12 digits. Some companies might claim they are fully registered but haven’t gone through the whole process, or worse failed to comply with the requirements. In any case extra caution is in order.

Google the company and the person you are dealing with, in Chinese. Any confirming or contradicting information is an indication for more or less trust. You will need the help of a Chinese speaker, since above information is only available in Chinese.

2.    Verify ISO 9001 and other quality standards

There are real and fake ISO certificates. A government body for quality control is able to verify the authenticity of certificates the factory presents to you.

Don’t be fooled, even though an ISO certificate shows that the factory underwent the process to comply with all requirements, which is time consuming and takes real commitment, it is NOT a guarantee that product quality will be immaculate.

3.    Order QTY matters

Generally speaking, the larger your order, the better the service you can get from a factory. The eagerness of the manufacturer (not necessarily of the salesperson) to get your order is an important indicator of what you can expect in a cooperation. Manufacturers take smaller orders in down times, though, service might suffer, as the following story illustrates.

Years ago I was working for a German wholesaler in their Shanghai office. I had finished the design of a tubular steel frame. After negotiations with several factories we placed a trial order of one 20’ container with a large factory (1000 workers) close to Hangzhou. They had all the machinery that was necessary for the production of our products, experienced welders/technicians, their own workshop for injection molded plastic parts, a good powder coating facility, and everything else you’d expect from a good manufacturer.

We had a reasonable quotation, had discussed all the fine points in Chinese, and a commitment that production time would be 30 days, after all moulds were finished. We signed a non-disclosure contract about our design and made a 30% down payment. The making of the moulds turned out to take longer than agreed. Finally, we had a prototype at hand that was close to what we were looking for. So we noted where improvements were necessary and gave the ok to go ahead with the production. By this time the factory had received a large order and we were bumped back on the production schedule. 50 days instead of 30 was the best they could do, they assured us. “And by the way, the steel price has increased recently, so unfortunately we need to adjust our quotation accordingly”, which they did.

At this point we were committed to this factory and dependent on getting the product to market as quickly as possible in order not to lose the sales season. When we visited the factory for final inspection we noticed that many parts were not welded at 90° angles, there were sharp edges, and powder coated surfaces were damaged because of careless assembly. The attention of QC during production and assembly was clearly somewhere else. In the end we accepted a partial shipment and agreed on reworking the remaining part.

Later we switched to a smaller factory where our orders received more attention.

4.    Big versus small

Bigger factories obviously can produce high volume and are able to manufacture most parts in-house. Prices are usually a bit higher compared to smaller factories. They usually have more experience with foreign buyers requirements and tend to have a more established quality control, just don’t expect it to be overly strict.

Smaller factories are very flexible and will often go out of their way to accommodate your needs. Good English speakers are rare in this environment, and frequent visits and supervision are paramount to successfully complete projects.

Dependent on your order qty, Chinese language ability, time and willingness to travel often, a manufacturer might or might not be your best choice. Alternatively, a good independent agent understands the politics within a manufacturing company, minimizes risks, and will find the right approach to get your project done.  

Once you compared prices and weighed the odds, you’ll be ready for the next step, factory visits. See with your own eyes if the picture that was painted by the sales person and the colorful website lives up to your expectation, BEFORE you commit yourself with down payments and producing any tooling. Good luck making the right decisions.

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