5/4/2014

6 ways Chinese suppliers can cheat importers

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6 ways Chinese suppliers can cheat importers
by Renaud Anjoran on 6 February 2013 This is the second part of the presentation I gave a group of Chinese suppliers. The first part, about the initial sourcing phase, is here. I made a list of the most common ways foreign buyers are cheated in China. My message was, basically: “When a buyer feels cheated, he will try hard to find another supplier. Be very careful.”

1. Price increases after a deposit is transferred
The supplier quotes a price, gets an order and a cash deposit, and then tell the buyer the price has increased. Usually a reason is invoked (materials just got more expensive, the product takes longer than expected to produce…). And, if the buyer asks for reimbursement of his deposit, it is denied because “it was already used for purchasing the materials for your production”. It is perceived as very dishonest. Sure, quotation mistakes happen. But, when costs are under-evaluated, it should be at the supplier’s expense (just like the opposite is at the supplier’s benefit). My advice to suppliers is to ask for the deposit “to pay a cash advance to material suppliers, and to ensure prices don’t go up”. And then, never ever increase prices after a deposit is wired — except if the buyer changes some requirements.

2. Price increases from one order to the next, without relation to production cost increases
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even though production managers could see it coming 2 or 3 weeks before. The oil cost is well below 100% of his total production cost. Importers see this lack of transparency with great suspicion. Send revised prices every month. Non-respect of IP rights For example. so the new price is XX USD”. an importer asks two Chinese manufacturers to develop a new design. but it can make a purchaser feel cheated. 3. Now. and show that you are hard at work trying to fix them. and the business relationship is maintained. Lack of reliability: late deliveries. But only one gets the order. It is not as bad as a price increase after a deposit is received. Lack of respect of contracts in general. Consistent over-optimism. 5. They do not want to give more data that could allow the buyer to challenge their calculations. Sometimes it is obvious: “we sell these parts to Honda” or “it will be distributed as medical supplies in US hospitals” really means “if you mess up. substituting a cheaper material) in case the new price is not acceptable.qualityinspection. he is actually widening his profit margin. Inability/unwillingness to reach the desired quality standard Some importers are flexible with quality. products CANNOT BE SOLD AT ALL in their distribution channel). 4. for example. Here is my advice to suppliers: Back it up with objective data. suppliers simply say “material costs go up. and the exchange rate goes up. http://www. If the supplier increases the final product by 20%. In most cases. My advice to suppliers is to evaluate each buyer’s quality standard. inconsistent communication… Here are a few manifestations of poor reliability that are very upsetting to buyers: Shipment delays announced at the last minute. My advice to suppliers is to keep the customer updated along the production cycle. Importers will not be shocked if you raise your prices (expressed in USD) for future orders. and labor costs go up.5/4/2014 6 ways Chinese suppliers can cheat importers Let’s say the RMB/USD rate suddenly raises by 20%. Offer alternative solutions (e. Others are not (if quality is below a certain standard. Don’t announce it once the buyer tells you a new order is coming up. which means consistent disappointment on the buyer’s side. Give them a discount when you mess up. let alone his selling price. Share information quickly if there are problems.org/china-cheat-importers/ 2/6 . and oil prices suddenly go up 20%.g. we won’t take the goods”. let’s say the product in question is made out of plastic.

Since he did the hard work of developing prototypes. rather than cost savings). there are many risks — including for the supplier. But be open about it! 6. as Steve Dickinson from Harris & Moure explained to the same group of suppliers just before it was my turn to speak. Now. Changing a component.5/4/2014 6 ways Chinese suppliers can cheat importers Here are two ways this can go wrong: The manufacturer that gets the order might try to produce the same design and sell it to other customers. What do you think? Post to Twitter 7 7 7 7 7 http://www. The other manufacturer feels that he can do what he wants with the design. At least 95% of the time. insufficient capacity. and to do it for the right reasons (e.org/china-cheat-importers/ 3/6 . the importer is not informed. or a process step. Lack of transparency The two most frequent cases where lack of transparency hurts the importer are as follows: Subcontracting production in a small workshop in order to cut costs (and without regard to quality requirements). My advice to suppliers is to respect your customers’ intellectual property rights. These attitudes are perceived as very dishonest by buyers. If that’s necessary to make the supplier happy with small orders at a low price.g. if it is brought up the right way and if explanations are reasonable. a packaging accessory. Sometimes. he will try to make money out of them through sales to other customers. it might be acceptable to the buyer. I focused on what can go wrong when a business relationship is already in place. a European buyer doesn’t mind if you sell the same designs outside of Europe.qualityinspection. Not respecting them is like stealing money in someone else’s wallet. It is perceived as dishonest if discovered after the fact. For example: “we are very full. so we need to place production in another workshop if you really need us to respect this shipment date”. – I didn’t include outright scams (when the supplier stops communicating after a deposit is wired) in this list. My advice to suppliers is to avoid this as much as possible. In case famous brands are counterfeited this way. But many importers don’t mind. some importers are more accommodating.

How many apartments will they have bought with that profit? • Reply • Share › Callum Renaud Anjoran • a year ago Yes.Would be a lesson and thanks for sharing. I would say that perfectly summarizes the things which keep me awake at night when worrying about my China orders. Yes. Next post: 5 good articles about buying from. single-sourcing is quite dangerous in China. and selling into. it's an unfortunate reality that many factory owners prefer to invest profits in real estate and other ventures than to put it back into the factory.5/4/2014 6 ways Chinese suppliers can cheat importers 4 Comments Sort by Best Quality Inspection Tips Share Login Favorite Join the discussion… Callum • a year ago Excellent. if they can reap you off they will. I would say the thing that drives me nuts is #2: getting nickeled and dimed with price increases from order to order. Even if it means you're out of business in 3 years. • Reply • Share › Damian • 6 months ago Had experienced all those with a paper packaging company Shenzhen jiajiexing (or JJX in short)!! It's really helpful but unfortunately didn't get this earlier.qualityinspection.org/china-cheat-importers/ 4/6 .. My solution is to put multiple suppliers in place so. You are right.. I can just say "not this time" and give the order to another supplier. if I think the price has risen unreasonably high. In 95% of cases. China http://www. 1 • Reply • Share › Renaud Anjoran Mod Callum • a year ago Thanks Callum. • Reply • Share › Subscribe Add Disqus to your site Previous post: When to ship LCL rather than FCL? Advice for importers.

Subscribe Follow Me Search on this site To search.qualityinspection.Factory improvements New Articles In The Mail Enter your email address below to receive every new article (about twice a week) Your Email. Contact him now if you need: ..5/4/2014 6 ways Chinese suppliers can cheat importers About The Author Renaud Anjoran is the founder of a quality assurance agency that provides personalized services to small and midsize importers in China.org/china-cheat-importers/ 5/6 ..Factory quality/social audits .Product quality inspections . type and hit enter Latest articles Quality Control of Products Shipped Directly to Amazon Auditing Electronics Productions in China Is Manufacturing Going to Leave China en Masse? Overview of the Malaysian Production Sector Purchasing Primary (Disposable) Batteries in China What a Social Auditor Should Check in Chinese Factories Negotiating for Slower Price Increases from Chinese Factories Categories Quality Control Tips Sourcing New Suppliers Supplier Management Process Improvement http://www.

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