Buying in China - The basics

First study the domestic market and try to determine the demand for the kind of products that people want to buy which can be sourced from China. For the time being, it is better to avoid to buy products from China made for children. Apart from that niche, try to explore other areas that you can buy good products from China. There are a lot of inexpensive items from China that are trendy and made especially for youngsters to buy. These are easy to transport from China and have a market already in the west. You can try importing fast moving items that are not too difficult to buy and sell and are quite inexpensive as well.

Try to gather as much information as possible about the short listed companies from China that you would like to buy your products from. There are a number of well established suppliers who already supplying a lot of goods from China to a good number of companies in the west. Try to locate them and build a business relationship with them before you buy. Most of these companies from China are already familiar with western tastes and modes of doing business. Buy your goods from established suppliers from China because that would be the best option especially for people with no prior experience of importing from China.

Try to have a local representative in China who can represent your company and take care of the remote dealings. The representative from China can either be a company or an individual who acts on your behalf and has your best interests in mind. Working remotely has its own complications which can be minimized to a large extent by having a dependable representative from China who can correspond with you on a constant basis when you buy.

At your end, you need to find retail outlets through which you can sell the products that you buy from China. Establishing a good business relationship at this end with many retail outlet owners would help you in recovering your investments quickly when they buy from you. You can also arrange for retailers to buy the goods that you get from China on a regular basis. This would help solve the problem of hunting for buyers for your goods every time a shipment arrives from China.

Once you import a couple of shipments from China, you would be able to understand the economics of the business and aim for higher profits. You would know where to buy to minimize your costs and how best to negotiate with your suppliers so that you can maximize your profits when you buy your products from China.

The most common method of payment used to pay sellers in China is a letter of credit or LC for short. A LC or L/C as it is sometimes denoted, is a financial instrument that is used to protect the interests of both the buyer from a foreign country and the seller in China. A bank usually issues an LC on behalf of the buyer. The LC is a kind of proof that the buyer has the money to make the payment to the seller in China once the goods reaches him.

There are normally four parties involved in the payment transaction. The buyer, the buyer’s bank, the seller in China and the seller’s bank in China constitute the four parties involved in the payment transaction. The buyer’s bank is also called the issuing bank since it issues the LC, and the sellers bank in China is know as the advising bank. Once a contract is finalized and the goods are ready for dispatch from China, the issuing bank sends the LC to the seller in China. The seller in China consigns the goods for shipment from China to a carrier. The seller in China then obtains a bill of lading from the carrier as proof. The seller in China then provides the bill of lading to his bank in China and gets his payment. The seller’s bank in China then gets a payment from the issuing bank by producing the bill of lading. The issuing bank then issues the bill of lading to the buyer and gets the payment from him. Finally, the buyer provides the bill of lading to the shipping carrier to take possession of goods.

Although an LC is a safe method of payment, it cannot totally protect a buyer. The buyer needs to check at each point that the buyer complies with the terms before going ahead with the contract. The buyer can use the services of auditing firms to check the seller’s reputation and quality assurance agencies to inspect the goods at every point in order to protect his payment.

The buyer can start small by placing a sample order for goods from China. Since the investment would be low, he can test the proceedings with a small payment. If things proceed well, the buyer can then confidently place a larger order to procure goods from China. Building trust slowly through bigger and bigger orders could ensure safety for the buyer’s payment. The buyer can also use an escrow service to monitor the transaction and to protect the interests of both the buyer and the seller.

The term Made in China has gotten a lot of connotations over a period of time. For some people, the term Made in China brings incredibly inexpensive products to mind. For others, the term Made in China reminds them about some bad experiences with low quality products. For still others, Made in China is just a tag that they see in most of the products that they purchase even in their own country. So the term Made in China can mean different things to different people. There is no standard perception to the term however and each person’s perspective on Chinese products is different from others.

Coming to the question of ethics about buying products made in China, one has to understand a few things at the outset. China is one of the most favored destinations for outsourcing manufacturing processes for companies around the world. You would probably see the Made in China tag on many of the branded products of western companies. For instance, many of Apple’s computers are made in China. Many of the world’s designer clothing are made in China. Also, many of the branded electronic products of major companies around the world are made in China.

While China manufactures these products, it does not have the legal rights to sell them. China is just the manufacturing facility and not the distributor for these products. So while are products are made in China, they can be legally marketed and distributed only by the parent company that outsourced the manufacturing to China. So buying these particular products made in China is definitely unethical if at all these are available in the market. However, other products made in China are freely available for you to purchase legally. Buying these Made in China products is not unethical. You only need to avoid buying products made in China when it is an outsourcing order placed only for manufacturing.

The perception that Made in China products are of an inferior quality is totally wrong. Products of an inferior quality are indeed made in China but they are manufactured for a market that expects those products for dirt cheap prices. It is the price that dictates the quality rather than the technological expertise of Chinese manufacturers. So if some products made in China are of low quality, just remember that they are made for a special low price market. There are a number of world class products made in China as well. So buying Made in China products is definitely not unethical when you know these facts.

If you are intent on maintaining ethical business practices in China for your business operations, you need to follow these guidelines carefully.

- Have a thorough knowledge of your products / services and the specific market that you are catering to in China.
- Make it known to the company that you are doing business with in China and the government officials in China that you come in contact with, that you would always run an ethical business come what may. After all, it is your right to run an ethical business in China. And it will stay an ethical business.
- As an ethical business, you would never have anything to do with “under the table” dealings in China. As an ethical business, you would always comply with regulations in China. As an ethical business, you would never violate the law in China.
-You probably need to educate your partners in China on the fact that through an ethical business everyone in China benefits. If it is not an ethical business, there might be short-term gains. But it is only an ethical business that wins in the long run. So it really makes sense to run an ethical business for the benefit of everyone in China.
- To let everyone in China know that yours is an ethical business, have your ethical standards clearly mentioned in writing. Also have it written in Chinese so that people in China would know that yours in an ethical business.
- Learn everything that you can about the people that you deal with in China, especially when they do not have an ethical business. If you find that they do not have an ethical business in China, then avoid a business partnership with them.- If someone in China approaches you for a bribe, politely show the ethical business standards that you have put down in writing.
- Be very open and strict about your ethical standards when you employ local workers from China for your company. Let them know that it is an ethical business. Require them to sign a contract after they understand your terms.
- Make sure that any business service provider helps you in negotiating business deals with others also makes known to others business partners in China that yours is an ethical business.

If you maintain these high ethical standards right from the very beginning, then it would be much easier to stay an ethical business in China without much of a problem.

The Incoterms commonly used in China are as follows:

EXW or Ex Works

EXW is one of the incoterms used in China, which refers to the passing of title and risk to the buyer once the goods cross the seller’s door. The buyer has to also take care of transportation and insurance costs.

FCA or Free Carrier is one of the incoterms used in China, which refers to the passing of title and risk to the buyer once the goods are delivered by the seller to the carrier and they are cleared for export. The seller needs to load the goods to the vehicle of the buyer. The buyer needs to bear insurance costs and receive the goods.

FAS or Free Alongside Ship is one of the incoterms used in China which refers to the passing of title and risk pass to the buyer once the goods are delivered by the seller alongside the ship. The buyer has to bear transportation and insurance costs. The seller has to look after export clearance.

FOB or Free On Board is one of the incoterms used in China, which refers to the passing of title and risk pass to the buyer once the seller on board the ship delivers the goods. This is predominantly used for transportation by sea and inland waterways.

CFR or Cost and Freight is one of the incoterms used in China, which refers to the passing of title, risk and insurance cost to the buyer when the goods are delivered on board the ship by seller. The seller also pays the cost of transportation to the destination port. This is predominantly used for transportation by sea and inland waterways.

CIF or Cost, Insurance and Freight is one of the incoterms used in China, which refers to the passing of title and risk to the buyer when the goods are delivered on board the ship by seller. The seller also pays for the cost of transportation and insurance at destination port. This is predominantly used for transportation by sea and inland waterways.

CPT or Carriage Paid To is one of the incoterms used in China, which refers to the passing of title, risk and insurance to the buyer when the goods are delivered to the carrier or else the seller pays transportation and insurance cost to destination. This is used for any mode of transportation.

CIP or Carriage and Insurance Paid To is one of the incoterms used in China, which refers to the passing of title and risk to the buyer when the goods are delivered to carrier by the seller. The seller also pays for the cost of transportation and insurance to the destination. This is used for any mode of transportation.

The other incoterms used in China are DAF (Delivered to Frontier), DES (Delivered Ex Ship), DEQ (Delivered Ex Quay i.e. Duty Paid), DDU (Delivered Duty Unpaid) and DDP (Delivered Duty Paid).

There are different modes of payment that people use when doing business with China. It is more of a matter of convenience between the buyer and seller and the kind of agreement that they enter into. For businesses that have a long relationship, having a 30 day credit period is not uncommon. This means that the buyer can send the payment 30 days after he has received the goods from China. This however means that the seller’s business in China would sometimes need to wait for almost 120 days before getting its money back. From the time the seller’s business in China invests money and starts manufacturing till the date the goods are ready, it might sometimes take up to 2 months. It might take another month for the goods to reach the buyer. And then the buyer takes another month to make the payment to the seller’s business in China. So a total of 120 days might lapse before the seller’s business in China gets the payment. Unless the buyer and seller have a long standing relationship, this may not be a probable method of payment.

Normally, a one-time payment is avoided when doing business with China. Many businesses use the “30-40-30” payment principle. In this method, the buyer pays 30% of the amount to the seller’s business in China upfront. The seller’s business in China immediately starts production of goods for the buyer. When the products are ready for shipping from China, the buyer pays a 40% payment to the seller’s business in China after confirming the quality of the goods. Then the seller’s business sends the goods from China. The buyer then inspects the goods at the destination and then pays the remaining 30% to the seller’s business in China. This form of payment is effective in protecting the interests of the buyer’s and the seller’s business.

The phased approach towards payment in any business can be the safest method. Since the entire amount is not paid in one go, the transaction can be regulated and controlled more carefully if things do not go as planned. In case the shipment does not arrive or the quality of the products is not satisfactory, then the buyer would have the option to hold the payment in order to remedy the situation. The “30-40-30” method is therefore a very safe mode of payment that protects the interests of the business of both the buyer and the seller.