May 2009 Archives

The 4th China International Metals Industry Fair 2009

Venue:         China Import & Export Fair Pazhou Complex, Guangzhou
Dates:          23 - 26 Jun 09
Organizer:    Metallurgical Council of CCPIT, Julang Exhibition Co. Ltd
Tel:             +86 10 6522 0753

The objective of MetalsFair 2009 is to facilitate the development of China’s metal industry and to promote international exchange and competition. The fair will display the latest information in metal and metallurgy technology as well as the most advanced equipment and products.

More information.

The payment procedure is an integral part of sourcing, ranking alongside desk research, initial contact, negotiation, and due diligence checks. Generally, there are three types of payment terms: Telegraphic Transfer (T/T), Collection, and Letter of Credit (L/C). T/T, as the most popular payment method, is welcomed by all suppliers, especially in China in recent years.

Yet the T/T payment method is not always fully acceptable to buyers, as it involves the direct transfer of funds, and may cause some problems during negotiations between buyers and sellers. In essence, there are three reasons why suppliers would generally prefer T/T:

Reason 1: Minimizing Risk
Minimizing risk is naturally important for suppliers. They would always prefer to have 100% of the amount in hand or at least part of the money in hand in case the buyer cancels the order after they finish the production.

Reason 2: Maintaining Capital Flow
Maintaining the flow of capital in a firm is always important, yet even more so in the current climate. Getting all the money or a large part of the money in advance can significantly enhance the supplier’s investment in new raw materials, for example.

Reason 3: Dealing with RMB appreciation
The exchange rate between the RMB and tne US Dollar has been continuously climbing for about 3 years since China started exchange rate reform in 2005. In 2007, the RMB appreciated by about 13% to the USD, and in 2008 by about 7%. This added a great deal of pressure for suppliers to obtain the payment within 20 or 30 days as they are afraid of the rapid change of the RMB and want to get the money as soon as possible.

Aside from these three reasons, there are also other concerns leading Chinese suppliers to only prefer T/T payment. Some plants consider the T/T way as fast and convenient, while some plants just do not have enough experience to handle ‘Collection’ or ‘L/C’. Some plants require T/T down payment for the purposes of preventing fraud. There are also other reasons which I do not mention here, but I believe that more communication and mutual understanding will definitely help both parties, the buyer and the supplier, to close the deal.

Hence it would seem obvious to suggest that a mixed payment method will be beneficial to both parties. For example, to use 10-20% of T/T down payment and 80-90% of L/C is a popular way to settle the payment term in the contract. Yet of course the buyer would base their contract negotiations on comprehensive due diligence checks and thorough investigation of the supplier.
TCA MAY Cover.PNGThe new edition of The China Analyst (May 2009) has been released, and is now available for download by clicking the link below.

As one of the main themes, this edition tracks China's progress in charting a way out of the financial crisis, paying particular attention to the implementation and impact of China's ongoing stimulus package and the outlook for growth in the course of 2009. Yet we also analyze China's stimulus package more closely in terms of its environmental policy implications, and the third leading article provides an assessment of new issues and salient trends in China's growing relationship with the African continent.

The Macroeconomic Monitor section provides an assessment of the performance of China's economy in the first quarter of 2009 and the prospects for the rest of the year, followed by all the usual range of sections filled with data and analysis on China's financial markets, trade, investment and industry. The China Sourcing Strategy section in this edition outlines the latest info and analysis on the successful formulation of China sourcing strategies in the current environment. This edition also features an expanded series of Regional Focus sections, constituting 14 pages filled with data, research and analysis on the strategic space between China and Africa, Australia, Latin America and Russia.

I trust our readers will enjoy this edition, and as always we welcome all feedback. 

To download this free publication, please click the following link:

The China Analyst - May 2009.pdf

The 6th PPI China – International Fair for the Food & Drink Processing and Packaging Industry

Venue:         Guangzhou International Convention & Exhibition Center, Guangzhou
Dates:          10 - 12 Jun 09
Organizer:    BMC Zhenwei Exhibitions Co., Limited
Tel:             +86 20 3888 0410

As one of the foremost food & drink processing and packaging industry exhibitions in China, PPI China 2009 is intended to provide a marketplace for innovative products and technologies of market leaders as well as food, drink, and pharmaceutical manufacturers from all over the world. The event will offer companies a 'face to face' opportunity to sell, generate new leads, raise brand awareness and expand networks.

More information.

The 8th China International Consumer Goods Fair

Venue:         Ningbo International Conference and Exhibition Center, Ningbo
Dates:          8 - 12 Jun 09
Organizer:    Organizing Committee of the China International Consumer Goods Fair
Tel:             +86 574 8717 8074

As the leading consumer goods fair in China, the Consumer Goods Fair will display a wide range of consumer goods like household textiles and garments, home appliances and electronics, office supplies/sports articles and furniture, decoration and gifts, articles of daily use, foodstuffs etc. The fair will feature over 4,000 booths with an exhibition area of 90,000sqm.

More information.
B. Sourcing through a professional service provider

Nowadays, there are a great number of sourcing service providers who play an active role in China. Their scope, deliverables, and fee structures are diverse. Some of their service models are similar to that of a trading company. However, some models are more creative and a foreign buyer can get great benefit and success by sourcing with the right service provider.

In my opinion, the ideal model is for the sourcing service provider to serve as your own sourcing team in China. This team can do all the work related to sourcing: 1) Identify potential suppliers, 2) Collect quotations, 3) Arrange a trip plan to China for the buyer, and accompany them to meet the potential suppliers, 4) Negotiate with the suppliers, 5) Assist the buyer and the suppliers to sign the supply contracts (while keeping prices transparent among the three parties), 6) Supervise the subsequent transaction process (with the suppliers exporting directly to the buyer) and manage the potential risks, 7) Manage the ongoing relationship between the buyer and the suppliers, and 8) Monitor the development of the industry.

A good sourcing service provider can help a buyer save both time and money in sourcing from China, although there are also issues to look out for when working with a sourcing service provider, such as making sure the service provider does not overcharge the buyer in terms of service fees. Yet obviously, using the wrong service provider can entail a great deal of risk. Therefore, it is essential to find the best sourcing service provider through a proper filter, taking into account the ideal service model, a reasonable fee structure, and reliable service quality.

From my point of view, the ideal sourcing service provider for someone who buys from China should meet the following criteria: 1) They should have a multi-cultural sourcing team to be able to communicate thoroughly with both the buyers and the suppliers; 2) The team members, especially the Chinese team members, should have extensive industrial and trading knowledge and experience; and 3) The sourcing service provider should have very good and solid references for their sourcing services.

Lastly, sourcing through a sourcing service provider obviously applies to these kinds of buyers: 1) Those who need to find the original suppliers; and 2) Those who do not have their own sourcing team in China or the team they currently have is not yet working well or fully operational.

The 2nd Dongguan International Exhibition on Foundry and Die-Casting Industries (FDI 2009)

Venue:         Dongguan International Conference & Exhibition, Dongguan, Guangdong
Dates:         14 - 16 May 09
Organizer:    Hong Kong Die-Casting and Foundry Association
Tel:             +852 2139 2280

The objective of FDI 2009 is to facilitate the development of China’s foundry and die-casting industry and to promote international technological exchange and competition within the industry. Hence the fair will display the latest industry information as well as the most advanced products and die-casting and foundry equipment, as well as foundry and die-casting materials.

More information.

The time that a buyer spends at a plant is crucially important. The main goal of taking a plant tour is to observe and judge the plant. So, taking full advantage of this visit comes down to a few very important considerations: What aspects should you pay particular attention to during the trip? and What questions should be asked in addition to inquiries about the product itself?

Here I want to share some tips based on my personal experience.

  • The boss/decision maker of the plant

    In general, the boss/decision maker’s attitude or working style is conveyed to his/her subordinates, and hence it will affect the efficiency of the whole production/delivery procedure. So if you find the boss is unprofessional or uncooperative from the very beginning, you should think twice about your choice of supplier.

  • The equipment of the plant

    The equipment can normally give a clear impression of the abilities of the plant. We are not necessarily saying the equipment has to be imported equipment; rather, we try to understand if the given equipment can deliver the ideal product. Asking the plant for the equipment list and maintenance status will be a smart test.

  • The production procedure and quality control

    Asking the plant if they have proper production procedures/quality control systems is very important. That helps us to understand if there is a systematic way to audit the whole process of implementing our order and insuring the right product is delivered on time. Normally, our questions would be along the following lines:
  1. Does the factory have daily production reports?
  2. Does it keep a weekly production progress report to identify and compare in-process and completed orders with order delivery dates?
  3. Does the factory have a written QA procedures or manuals?
  4. Does the factory complete its own final audits?
  5. Does the factory have documentation inspection standards?
  6. What percentage of received raw materials is inspected?
  7. Is there an inspection process between each production section?

Of course, the questions above are only part of what should make up the most frequently asked questions, and these are also subject to each buyer's individual needs during the visit. Yet they can be used as a basic guideline of what needs to be asked. 

  • The working environment of the plant
People sometimes tend to neglect the working environment of the plant. But this is actually an important indicator of the quality of the plant and of some aspects that will affect the quality of the product, such as cleanliness and tidiness of the production areas, and adequate lighting in the factory, especially in areas that will affect the quality of the product (inspection, hand operations, painting, silk screening, printing, packing, testing, etc.), etc.

Generally speaking, many aspects affect and can reflect the quality or the standard of the plant. Different products, different amounts of an order can sometimes also make different requirements of the plant. The visitor should prepare the necessary questions beforehand, and not merely ask random questions during the visit.
A. Using a trading company

Trading companies usually specialize in a certain industry – so they can find the right products quickly. Sometimes a trading company can help if the original supplier does not have an export license. A buyer can also make use of a trading company, especially when the trade value and volume is very small, in which case suppliers might be unwilling to supply directly.

However, there are pitfalls when doing business with or through trading companies. First of all, they do not usually reveal the original suppliers’ information and prices to the end buyers – their direct client. They might make a large profit from the price differences. In addition, quality is another concern, since a trading company would usually prefer to source material or goods with the lowest possible price. I know of some trading companies that supply bad quality products while using fake certificates.

Strategic sourcing is very popular now. Sometimes the buyer needs to work with the original suppliers closely for products innovation, new market development, or other strategic purposes. A trading company operating between the buyer and supplier would then represent a barrier, especially since efficient, direct communication between the buy & supply parties is absolutely essential.

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