Low production costs, large amount of free capacity, and a strong appetite for new business: The opportunities for industrial sourcing in China are large, but not that easy to get:
Many hurdles still exist that prevent many small and medium companies to do business directly with Chinese suppliers and take advantage of it: Differences in culture, working methods, and the crucial need to have a minimum presence in China to follow-up quality and on-time delivery are the three main blocking points.
Unfortunately, Western companies seem to have serious difficulties driving and managing internal changes in purchasing habits, expectations, methods and negotiation style.
As an example, when working on a first order with a Chinese supplier, buyers typically underestimate the time and efforts needed to go from an agreement on technical elements and price to a sign Purchase Order in due form.
Suppliers are often overwhelmed by the long and complex General Terms & Conditions, with lots of documents, mainly designed for business in Europe. It takes time and a lot of explaining to go with a Chinese supplier through these documents. It is not that they disagree but they just need a long time to digest it… In addition, during this long and crucial negotiation, conference calls and emails do not work very well.
For all these reasons, and because of these difficulties, many “purchase order negotiations” fail, and all energy and time invested in the China Sourcing project is wasted. In the end, buyers tend to go back to the well known road of working with the incumbent supplier(s), for which risks are limited and purchasing conditions agreed a long time ago.
This is why we recommend Purchasing Teams to travel to China after suppliers have been pre-qualified, technical project requirements thoroughly studied and part prices agreed:
- Negotiations for the signature of the first Purchase Order(s) will be made face-to-face (the optimal context) and have all chances to be successful
- The first visit to China by the Purchasing team will bring tangible results
This is one example of the many adjustments in working habits that facilitate the implementation of a China Sourcing strategy