Product Sourcing from China: 3 Common Risk Factors and How to Avoid Them

Product Sourcing from China can be a great way for you to make money, as long as you know how to play it safe and avoid the common risks associated with this practice. Before you dive right into looking for suppliers from China, you have to fully understand the process of product sourcing and why product sourcing from China can be much more lucrative than sourcing locally. High output Chinese factories are equipped to make products quickly for a lot less money than factories in the United States, or anywhere else in the world for that matter.

By partnering with one of these Chinese suppliers, you can significantly increase your bottom line by paying less for product sourcing. It may sound like an obvious decision to make to benefit your business, but there is a lot of planning and work that must be done before you can start enjoying a beneficial business relationship with a Chinese supplier.

This article will take a look at some of the most common risks related to the business of product sourcing from China and how you can be proactive about avoiding them.

Risk #1 – Working with a shady supplier

Every industry has reputable companies and companies that should be avoided at all costs. There is no exception to this when it comes to Chinese suppliers. You will find a lot of honest and reputable companies, but if you aren’t careful, you might also find some suppliers who want to take advantage of you and benefit their own pocket instead. Here’s a good read from eBay regarding product sourcing if you decide to try eBay out.

What you can do about it – In order to make sure that you are entering into a contract with a trustworthy supplier, you must do plenty of research beforehand. Don’t worry; you don’t have to do it alone. Product sourcing from China has become such a popular business, there are professional companies that will research Chinese suppliers for you and help you expose any negative information that can signal a red flag for you.

Let’s face it, unless you decide to move to China to be closer to your manufacturer, you will lack a lot of oversight and will have to rely on the eyes and ears of your Chinese business associate to ensure that everything at the factory is running smoothly and efficiently. For this reason, you want to choose a supplier that is professional and has a lot of experience in exporting goods from China for the purpose of reselling somewhere else. Don’t be afraid to ask for hard evidence of experience either. Anybody can tell you what you want to hear in order to land the deal. You need to see with your own two eyes that your potential supplier has a long resume boasting a lot of success in the exporting industry.

Risk #2 – Less protection under the law

When you decide to get involved in product sourcing from China, you have to be prepared for less protection under the law. It’s just part of the importing/exporting business, and while it might not seem fair, it is simply the nature of the beast. If something goes wrong with your supplier, you can try to seek justice through legal means, but you may not always be successful. The Chinese legal system does not necessarily recognize injustices in business partnerships in the same way the U.S. court system does.

Even if you try to sue a Chinese supplier in the U.S., chances are Chinese courts will not uphold any type of decision.

What you can do about it – In order to try to give yourself added legal protection, you need to make sure that the contract you enter into with your Chinese supplier is airtight. This document should, of course, lay out reasonable terms that are agreed upon between you and your supplier, but it should also consist of terms that can be upheld in either a U.S. court or a Chinese court. This contract is going to serve as the foundation for your entire product sourcing endeavor. It is in your best interest to hire a lawyer that specializes in exporting, especially product sourcing from China, who can assist you in drawing up terms that are reasonable yet provide you with protection in the event of a problem.

Risk #3 – Stolen intellectual property and illegal redistribution

One of the biggest reasons business owners avoid product sourcing from China is because of the major risk of having their product idea stolen without their knowledge. This all goes back to finding a reputable supplier. If you are product sourcing from a factory owner in China who seems like he has a hidden agenda, chances are he does have an alternative plan in mind for your product. Countless horror stories have been reported by business owners who explored the option of product sourcing from China to save money and ended up with nothing but problems after their product was being reproduced and sold in a different market without their knowledge or permission.

What you can do about it – One of the easiest ways you can try to minimize the illegal poaching of your product design is to place an identifying marker on your product mold. This way, if a product is returned to you for being defective and it does not have the mark, you know right away that it is not being produced and sold according to the terms of your contract. Unauthorized forms of your product circulating in the market can come back to haunt you. Another way you can keep tabs on the activity in your supplier’s factory is to make frequent visits. If you make your presence known often, your supplier will get the idea that you are diligent about watching over the production of your goods, and he might be less likely to go behind your back. If it is not feasible for you to make trips to oversee production, there are independent inspection companies for hire in China that will go to your factory and report back to you about everything they see.

By staying smart and aware, you can avoid these common risks and make product sourcing from China work well for your business.

How to Manufacture New Products from China and Keep Your Intellectual Capital Safe

About 8 or 9 years ago, the manufacturing industry in the United States was turned on its head by breaking stories about the low cost of producing goods in China and how American companies simply could not afford to keep up. In order to even try to compete with China’s low cost, high output model, American manufacturers were slashing their prices so much that they were barely bringing in a profit, if at all. It became exceedingly clearer as American companies began to suffer immense losses that the only answer that seemed viable was to move production to China or face total elimination from the market. American companies had to think seriously about how to manufacture new products from China or deal with the grim reality of shutting their doors forever.

China manufacturing has its perks, but it also comes with its fair share of risk. When you submit the specs for your product to a Chinese manufacturing company, you give up a little bit of the control. You won’t be on site to oversee operations and make sure that your product is being made according to your design and specs. You also won’t have as much of a grip on how well your intellectual property and proprietary information is being protected.

The last thing you want to do is hand your product over to a China manufacturing company, only to have your idea stolen, reproduced, and sold through other means without your knowledge. If this sounds like an extreme scenario, unfortunately it is not. Too many American business owners desperate to keep their operation afloat have fallen victim to China manufacturing companies that reproduce and sell the original product without permission. If you are interested in learning how to manufacture new products in China, but have been hesitant to pursue this option because of the dangers and risks involved, the steps below will help you become a smarter deal-maker and help your company thrive.

1. Conduct thorough research

There are plenty of things that you would never buy sight unseen, right? So why would you enter into any type of manufacturing agreement with a China manufacturing company without visiting the factory first? It goes without saying that you have to spend a lot of time and energy researching factories in China before you decide which one will begin to manufacture your products, but conducting this research at a distance via the internet is not sufficient enough.

Once you compile a list of potential factories, there are some resources you can utilize to verify the quality of these companies. The first place to start is with Chinese government agencies like The China Council for the Promotion of International Trade and The China Chamber of International Commerce. These agencies will provide you with basic information about the China manufacturing companies you are interested in so that you can determine whether or not they seem reputable. After cutting your list down to a few top contenders, it is time to spend some money on a professional research firm that can delve deeper into the underbelly of these factories to find out if there is any negative information lurking out there. Their findings should definitely help you determine the best factory for you to manufacture new products from China.

The next step is to actually pay a visit to the factory you think you want to do business with. Anyone can make themselves or their business look and sound good online. You need to visit in order to make sure the factory, and the businessperson representing the China manufacturing aspect of the deal, both check out.

2. Establish a Business relationship based on honesty, fairness, and trust

If you want to manufacture new products from China, you have to prepare yourself for a whole different way of doing business. When establishing partnerships with factory owners in China, you will quickly recognize that a little fairness and a firm handshake go a long way, and will usually hold more weight than any American legal document you have in your arsenal. Non-Disclosure Agreements and other legal documents designed to protect American Business owners don’t really translate into much of anything in the Chinese business world. Of course, this doesn’t mean you should toss all forms of legal business documentation out the window when entering into a relationship with a China manufacturing company. It simply means that you need to alter the way you do business to accommodate a different culture.

3. Brand your product design

Even if you feel pretty confident that the China manufacturing company you have chosen to do business with is completely trustworthy, you just never know what can happen. If you want to add an extra measure of protection to ensure that your products are not being duplicated and resold without your knowledge, then you can easily mark your product molds with a distinguishing logo on the bottom. This way, if a customer contacts you about an issue with your product, you can verify whether or not you are legally responsible for it by checking for your custom mark. This is the most straightforward way to reduce the problem of product duplication without your knowledge. While it may not eliminate the problem, it will certainly help to minimize it.

The bottom line is that brand theft is simply a risk you take when you manufacture new products from China. The best business move you can make is to work hard to establish great business relationships with your Chinese counterparts without coming off as fake. If the owner of your China manufacturing company genuinely likes and respects you, and feels that you genuinely like and respect them, they will not have any motivation for crossing in any way.

Moving the production of your product to China can be a difficult endeavor, but if you partner with the right China manufacturing company, you can begin to manufacture new products from China and start seeing a major improvement in your company’s balance sheet at the end of the quarter.

Why More Companies are choosing China Product Sourcing and the Steps you can Take to Manufacture your first product in China

China product sourcing is not just a trend or a fad. It is a new way of doing business and more companies are recognizing this China continue to prove that they are capable of large scale mass production using highly advanced technology and an army of workers to get the job done efficiently and fast. If you have been exploring the idea of China product sourcing for quite some time now, but have just recently decided to take the plunge and commit your business to this transition, then you probably have done a lot of research on the topic.

Despite all of your research, you might still have some lingering questions about how to seamlessly transition from sourcing domestically to China sourcing. Keep in mind, establishing a strong pipeline of China product sourcing can take a little bit of time, so you don’t want to cut off all of your current sourcing channels just yet.

As you begin to set up your plan to integrate China product sourcing into your business model, you will want to gradually implement this change, slowly replacing your current sourcing methods with China sourcing, until all of your sourcing needs are being fulfilled through Chinese suppliers, if that is your end goal. Maybe you want to maintain relationships with your best domestic suppliers just in case things don’t go the way you anticipate with your new model of China product sourcing. Ultimately, how you make this transition and implement this change is up to you, but you are advised to take your time and make carefully thought out decisions since this type of move can significantly impact the way you do business.

This guide consolidates all the information you need to know about getting started with China product sourcing, so that you can use it as a quick reference when you begin to formulate your plan. Whatever prompted your plan to start using China sourcing, congratulations. You are making a great decision for your company that will result in higher profit margins for you as long as you execute this change well. There are many things that can go wrong with China sourcing, but as long as you are prepared, you will be able to manage any issues that arise to make sure your inventory remains fully stocked with quality products from China.

Steps you should be taking right now to manufacture your first product in China:

1. Consult with a product sourcing company to find the right Chinese supplier for you. If you don’t think that you have room in your budget to hire a professional product sourcing company to assist you with finding a supplier in China to manufacture your goods, then you need to find a way to make room. Picking your supplier is hands down the most important part of this entire process. If you are not working with a credible supplier that you can trust, you will never be satisfied with the products being manufactured for you. If you just settle for the first supplier you come across, all of your China product sourcing efforts will be wasted. You will likely find yourself embroiled in a lengthy legal battle over some breach of contract that could have been avoided if you had simply taken the time to select a reputable China sourcing supplier.

2. Negotiate the terms of your partnership. Once you have done all of your research and taken the advice of a professional product sourcing company, it is time to establish a contract with the Chinese supplier of your choice. If you are used to creating traditional contracts for co-packers, you can forget about everything you know and approach this situation with a totally different attitude. While settling on a mutually beneficial contract is an important formality when striking any type of China product sourcing deal, a signed piece of paper is not always going to hold a lot of weight in the courts if you find yourself in a lawsuit situation. Negotiate firm yet fair terms and recognize that your word will earn you a lot more respect in the Chinese business world than a legal document. You might not believe this is true until you begin working with your supplier, but you will quickly understand that China product sourcing comes with a whole different set of rules that is completely different than anything you thought you knew before.

3. Decide on products and begin soliciting resellers. You don’t want to bring a ton of product over from China if you have no place to put it. That would just be a foolish decision and it certainly isn’t the right way to go about China sourcing. China product sourcing is all about getting in large quantities of your product and turning it around as quickly as possible. If you move your product quickly, your supplier will value your business even more and you will have an upper hand in the business relationship. So, before you can put your China product sourcing plan in motion, you have to work hard to find resellers that will buy your product at wholesale quantities and prices for you. If you want China sourcing to work for your company, you need to create a sales force that you can rely on to move your product. Do this and you will definitely reap the benefits of China sourcing.

4. Protect your product. China product sourcing has a lot of benefits, but it definitely comes with its fair share or risks too. You need to do everything you can to protect your proprietary information from being unlawfully copied and reproduced without your knowledge or consent. This sort of thing happens all too often to people who have not done the proper amount of research on the dangers of China product sourcing. You can avoid these problems by being savvy and always being one step ahead of your supplier.

If you follow these four steps, you will be able to manufacture your first product in China faster than you expect. Of course you can always head over to Alibaba.com and check there first but if you want full control, avoid this method. China product sourcing may seem like a lot of effort, but it will be well worth it in the end.

How To Find the SUPER Sourcing Agent

Finding the right sourcing agent is key to securing the product for your company. Spend the time to vet through the thousands out there by following these guidelines.

Product Sourcing in China. Top Three Things To Do To Get It Right.

Sourcing Strategy: Principles, Policy and Designs

Sudhi Seshadri, published 2005, 320 pages

Outsourcing Training and Development: Factors for Success

Judith Hale, published 2005, 192 pages

Global Production and Trade in East Asia

unknown, published 2001, 350 pages