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We see many western buyers and entrepreneurs coming to China for the first time to develop their sourcing of parts or equipment. They all have great plans but are poorly prepared or not prepared at all:
Poorly-prepared visit type 1 - "Just testing the water":
Some come for the first time just to have a look. Their secretary would book a couple of meetings in Shanghai with Chambers of Commerce representatives, with logistics providers, and with a few local subsidiaries of their clients. The dedicated secretary wouldn't forget the rented car with driver and the Chinese interpreter waiting at the airport.
During their trip here, they show interest and motivation but achieve little. "Let's do Sourcing in China!". The reality is a waste of their time and their company's money in what I would call "Industrial Tourism"!
Poorly-prepared visit type 2 - "The Road Trip":
Others come directly for a long supplier identification tour. Their agenda is clear: visit as many suppliers in China as possible. Their too-long list of suppliers identified on Internet is ready and contact established. 10 days of factory visits, business lunches and 4 star Chinese hotels in hangzhou, Wuxi, Wuhan (pronounced by our explorers "an-zoo", "Woukssy", "Vu-ann"). They beat record numbers of planes, trains and taxis trips. They soon run out of business cards and get their eyes full of Chinese factories.
They of course managed to identify a few potential suppliers. But it is a first contact anyway. More visits will be needed to start in-depth technical discussions. Again, there is litlle result out of these expensive and exhausting business trips.
I strongly advise buyers to forget about these two types of visits!
procurAsia recommendation: A "well prepared visit"
For a winning project, I recommend the following:
Prepare first:
Firstly sub-contract, from your office, the identification and pre-qualification of suppliers to a China based and specialized company. You will save on flight tickets, hotels bills, and jetlag. In ten days, we, at procurAsia, can easily identify a short list of suppliers, visit 5 of them, and pre-qualify the best 3, all supported by professional reports. Doesn't it seem more practical and cost-effective?
Secondly, prepare a complete RFQ and send it to the pre-qualified suppliers. Again, the technical reviews and clarification process are best managed locally, and procurAsia assistance will save you mistakes and delays. You will soon receive initial pricing.
At this stage you can send a Purchase Order draft to the best suppliers. You have all elements in hand to calculate landed costs of the purchased equipment or parts, and get a good idea of your target buying price.
Your first visit to China: a week of technical and commercial discussions
One week is enough: Day1 and 2: Visit of the best 3 suppliers. Day 3: Teleconference with your technical team back home, during which you make your choice. Day 4 and 5: Additional meetings with the chosen supplier for in-depth discussions: The agenda of these discussions shall be:
1- Detailed technical review - Drawings and sample review, production process, tolerances, batch control, production machine parameters, cycle time, packaging, labeling, etc. Answer all their questions, and ask all yours. Doing so, you minimize the risks of technical problems later in the project.
2- Commercial negotiation:
You have the optimal context for a successful negotiation: Your are face to face. By experience, negotiating by conference call and exchange of emails never works in China. For the first order, sit down and go through all documents, payment conditions, deliveries. Explain and negotiate.
3- Agree on the next steps leading to the first Purchase Order Signature. The paperwork is sometimes heavy. You will have to be diligent and quick: From the Chinese point of view, if you need 3 months to make a decision and sign a paper, you are not credible! Enjoy the dinner they will offer, and make friends.
Your first visit to China will bring tangible results: an agreement on the first P.O. to be signed quickly, future cost savings, a planning, and material (pictures, samples) that can be used internally to demonstrate that the China Sourcing initiative is making progess!
Nicolas Cappuccio
September 2007
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