How to source from China

Increased global competition requires marketers to lower their costs effectively in order to survive the competition. One of the options for achieving lower costs is to outsource parts , components or even the whole product. China is a low-cost outsourcing destination. There are basically two options when setting up your own production presence in China: direct import from China and/or contract manufacturing.

In both cases, two types of companies must be considered : export trading companies and manufacturing companies with export licences (licences are available to all enterprises within five years of China's accession to the WTO in November 2001). The advantages and disadvantages of both types are analysed in Table 4.4.2.

Table 4.4.2: Comparative strengths and weaknesses of importing channels from China

	Strengths	Weaknesses
Export	Export-oriented	Lack of understanding about product
Trading	Handling variety of products	Less control over quality
Company	More international exposure Professional trade staff Sourcing from different areas (order consolidation) Familiarity with trade practices	Less control of production schedules Dependent on price mark-ups Insufficient understanding of the manufacturers by the buyers
Manufacturers	Understanding of product nature Technically competent Quality control Control over production schedules No mark-up on product costs Direct communication on product requirements	Lack of understanding about trade practices Less international exposure Operating in one area only Inability to consolidate orders Lack of experience in handling export- related matters

Caution must be exercised when choosing between the two types of vendor. The following provide some guidelines for foreign companies outsourcing in China.

Vendor maturity

Vendor maturity can be measured by several criteria including:

• company size (annual sales, total headcount, capacity);

• age (history);

• previous experience;

• export records;

• understanding of foreign customer concerns;

• financing capability for export sales;

• production capability (capacity to handle volume, equipment conditions, quality assurance system);

• management (professional backgrounds, understanding of export practices, language).

Factors to be considered if the vendor is a trading company:

• sourcing capabilities (financing, geographical coverage);

• experience (history, relationships with key suppliers and key ports, export records);

• staff (language proficiency, understanding of international trade practices, attitudes).

It is always worthwhile contacting several vendors to compare prices and quality before you decide with whom to contract. Even if you have chosen one that you think is satisfactory, start with a small order before you become totally dependent on the partner. It is also advisable to be aware that deliveries are often late because of infrastructure problems in some areas. Another factor that causes late delivery is over-commitment by producers to export orders. If you are to place an order, it is advisable to make time allowances for the expected delivery.