Tips for Avoiding Catastrophe when Doing Business in China
Many companies have had terrible experiences doing business in China, complaining of poor service, off-spec and low quality product, and deliveries months late. If you choose to work directly with Chinese factories instead of through ChinaForgeTM, then the following tips should help you reduce the likelihood of problems. Each factory is different of course, so it is important to choose suppliers wisely and understand the unique culture of each specific Chinese factory you are dealing with. And always have a backup plan with other factories in mind for when a deal goes bad.
1. Have frequent face-to-face meetings
Chinese business people are most concerned about maintaining the relationship and about keeping "face". To make them feel they have a good relationship with you it is important to meet with them face-to-face at least once or twice a week during a project. Also, by meeting face-to-face you are more likely to be dealing with people who have real decision making power, not just junior staff who are paid meager wages to just answer the phone and respond to emails. When meeting face-to-face make it clear on every single occasion how critical the delivery date is to you, so that it will be a large loss of face for them to miss the deadline.
2. Use Chinese, not English
All contracts, specifications, and vital communications should be in Chinese, not English. The higher-ups in a factory will usually be older people who have no knowledge of English. The employees with English knowledge are likely to be low-paid recent college graduates and often lack responsibility and loyalty to the company. They may be English majors with little or no technical knowledge. Such staff members may lead their employers to believe that they have more English knowledge than they actually posses. This is possible because passing the standardized English tests in China has more to do with the ability to memorize answers then to use the language effectively. Rather than admitting they have no idea what a piece of technical English means, some employees may just make something up, or ignore the information altogether.
3. Keep up-front payments small
Insist on a contract that specifies a small up-front payment that is only enough to cover raw material. Make it clear in the contract that the remainder will not be paid if the project is late or off-spec. That way the factory will lose money if they do not make the deadline or if the project is off spec, which will encourage them to be on time and on spec. For this to work you must have a good idea of the actual production costs. Sometimes the amount a factory quotes you for a project may be many times their actual costs, so they can still make a profit even if they only get your small up-front deposit and don't get paid for the rest.
4. Get certification from third-party inspectors
Have third-party Chinese companies inspect and certify the product before shipping, and make sure the factory understands from the start that you will be doing this. If the factory knows the product needs to pass inspection by a professional Chinese entity from the start then they are more likely to ensure that the product is high quality and made to spec. However, make sure the third party you choose to do the inspection and certifications is reputable, and doesn't have an existing relationship with the factory.
5. Use factories recommended by Chinese associates
When finding new factories in China, it is best to be introduced to the factory by a mutual friend of the factory owner. This way you have a strong relationship with the factory from the start and won't have to build one up gradually over time. The factory will be more likely to give you good service from the very beginning and giving you poor service will be a much bigger loss of face for them.
6. Trust, but verify
When communicating with Chinese factories pretend like you completely trust them, to give them face, but also verify their claims and get everything important in writing and signed, so that they will lose face if they are dishonest. For example, if the factory says they have a certain capability, make sure you see the equipment on the factory floor with your own eyes. If they say they have completed manufacture of tooling or a product, inspect it in person, or at least ask for a photograph and samples. If you verify everything every time they will come to expect verification and eventually start being more honest with you to avoid repeatedly losing face.
These are just a few of the guidelines we at ChinaForge have learned from our experience doing business in China, but they are some of the most important ones. We are still learning every single day. Having Chinese natives like Xiujuan Mo on our team is a huge benefit. She understands how Chinese people think and teaches us how to effectively communicate and transact business with them.