Sourcing Road Map

China was a low-cost, manufacturing-for-export market for decades, but with years of government efforts and economic development, the country has moved up the value chain. Production of many low-cost items has since moved elsewhere, but many foreign companies still look to China to source more technically complex products and to create competitive advantages by integrating China into their global supply chains.

On this page

• Before you begin
• Sourcing research
• Selection
• Contracts
• Placing orders
• Quality control
• Delivery
• Receiving goods
• Sourcing contacts

Before you begin

Assess whether sourcing from China is really what your company needs. Questions to consider:

• What are the benefits of sourcing from China
• Are there better locations aside from China that you may source from
• What sourcing model you would like to adopt, such as:
  • simply buying from a local manufacturer
  • through an intermediate agent
  • setting up a strategic partnership with a local manufacturer

Sourcing research

It's important to know your requirements and prepare proper drawings and specifications for the products that you are looking for. You need to have a clear understanding of the category, as well as what type of suppliers you are looking for, such as:

• a manufacturer or a third party supplier
• a large manufacturer or a family-owned business
• a third party supplier with in-house development capability or one that buys-in and sells-out
• vertically integrated manufacturer or assembly-based manufacturer

There are various resources that you can approach to find suppliers.

Internet

The internet is a good place to begin your search, and will give you a good sense of the range of options available to you. Many foreign buyers start from Alibaba.com. You will obtain hundreds of results, which can be overwhelming, but treat your internet research as a preliminary examination of what options are available.

Exhibitions

Exhibitions serve as good one-stop shops for you to find potential suppliers and meet people face-to-face. There are numerous exhibitions all over China focusing on different industries. Find the top ones with the largest size and exposure, for example those with more than 200 exhibitors and more than 20,000 visitors.

Selection

Seeing is believing! It is important to:

• talk to potential suppliers face-to-face
• pay a visit to the local factories if possible
• ask the supplier for its certification or qualifications
• look for recognizable standards e.g. ISO
• ask whether the supplier has any experience in exporting overseas, particularly to your region
• conduct due diligence in advance to minimize risks
• ensure that your order will not be subcontracted to smaller manufacturers

Ideally a supplier will provide you with a point of contact at several of its clients to act as references, particularly any clients based in Europe or North America. You may wish to consider using a third party to conduct various levels of credit checks and due diligence.

Find suppliers that have the right operational size for your intended sourcing needs so that they will take your business seriously. For instance, a manufacturer will not give priority to a $10,000 project if it often deals with $100,000 projects.

Provide specifications and drawings and ask for samples. Note that you may have to pay the shipping costs. Remember that a high quality sample does not mean that you can avoid conducting quality control during mass production.

Understand relevant import & export regulations. These may apply to payment terms, import duties, shipment terms, logistics costs, etc.

Consider pricing, service, lead times, and terms and conditions well before you make any decision. As you make your selection and negotiate specific terms, be cautious of simply negotiating down the price, as when one manufacturer offers a much lower price than the average, you can be confident that there will be quality issues. Offering a reasonable margin to your supplier can help ensure they will not be forced to lower the quality just to make ends meet.

Contracts

A well-written contract may not prevent you from any disputes with your suppliers but it can provide you options when disputes arise, including the threat of legal action. A good contract needs to:

• be clear, comprehensive and enforceable
• address payment / safety / quality control / compensation terms, inspection rights, and dispute resolution

If intellectual property is a key consideration for you, then consider signing a Non-Disclosure Agreement (NDA) that is drafted in Chinese by Chinese lawyers.

According to the 2016 World Bank data, China ranks fifth among 190 countries in terms of enforcing contracts, meaning that a high-quality, enforceable contract is useful in mitigating risks while doing business in China.

It is also important to prepare your contract in both English and Chinese. A Chinese-language contract will better protect you in the courts and avoid your supplier using language barriers as a pretext for any non-compliance.

Watch our YouTube video: Protecting your IP through Well Drafted Contracts

Placing orders

Ask the manufacturer to provide samples before production starts, to ensure that the samples are in keeping with your drawings and specifications.

Pay attention not only to the samples, but packaging. Good packaging can protect your products from any damage caused during shipment.

Count Chinese holidays into your lead time. There are two long holidays each year: Chinese New Year (usually around January or February), and Chinese National Day in early October. People often take weeks off around these holidays, which slows production significantly.

Allow for a gradual learning curve by working closely with your supplier and helping them through any production issues that arise at the beginning of the process.

Quality control

How you conduct quality control will depend on the volume and value of your order:

• For small orders, such as those amounting to just 1% of the supplier's total production, you may have to rely on the supplier's quality control methods
• For large orders, you should consider hiring a dedicated person who can be on the ground to keep a close eye on quality control throughout the production process, including raw material procurement
• For large volume orders, you may consider hiring a professional service provider to conduct the inspection on your behalf

Quality control is a never-ending process. There are many ways to help ensure the quality of the products you source.

Delivery

Ensure your order is quality checked before shipment. Do it either through your own staff or through a third party quality inspector.

Ensure your goods are packaged according to your requirements. Poor packaging may ruin the quality control efforts made during the production, particularly if your products are delicate or fragile or sensitive to the environment.

Use a freight forwarder to organize shipping and paying of duties and taxes as needed. Many Chinese manufacturers quote on an ex-works or Free on Board (FOB) basis (i.e. quotation from the factory gates or at the port) so you have to arrange the shipping and delivery to your warehouse. Alternatively, you can ask for quotations based on Cost, Insurance and Freight (CIF) during your initial negotiations.

Receiving goods

Check your goods as soon as they are delivered to your warehouse. Provide the manufacturer detailed feedback and tell them clearly where improvements can be made for the next shipment.

Decide whether to continue the relationship or terminate it. Make sure that you have some substitutes which can start the production as soon as needed. And make sure that you always have some inventory in your warehouse for any contingency caused by failed performance of your supplier.

To learn more about importing to Canada, please refer to the website of Canada Border Service Agency.

Sourcing contacts

Your search for products from China can begin in Canada. There are a number of Canada-based, overseas organizations that can provide useful information and assistance. Below is a list of contacts - in Canada, China, and Hong Kong - that you may approach to begin your sourcing research.