Deciding which factory to work with in China is very difficult. It is important to get advice from experts with a strong base in China and true understanding of your company and your market.
There are a number of options:
- use specialist agencies and consultancies. Employ ones based in China or who travel to China on a regular basis
- contact companies and individuals who have “been there, done that” in China and are willing to help newcomers.
- contact your Chamber of Commerce in China.
- catch a flight and visit an appropriate trade show in Hong Kong.
If you are making contact with specialists you need to take great care. There are many horror stories of companies investing time and money in China-based research for little or no return. You should do due diligence on any specialists you are planning to use, including any China ‘affiliates’.
Key steps for finding the right partner – China Factory Selection
Companies looking to find the right manufacturer need to take the following steps:
- Discuss your expectations and business model with a local consultant.
- Learn the regulatory requirements of your target industry in China.
- Research the market or industry to find the structure or normal channels – it is likely to be very different from what you assume.
- Define your needs accurately and have someone on the ground in China research and vet them for you as a first step.
- Short list the candidates and get quotations or references.
- Do a proper legal background check on the final candidates to verify the information provided, including ownership, registrations and business scope.
- Go and personally visit the top candidates with a trusted translator and experienced resident.
- Use a proper legal translation from a law firm for final contracts but do much of the structure work yourself prior to that to save costs.
How to do perform due diligence on manufacturers
It is important to research any manufacturers you are considering doing business with to ensure that they are reliable and are capable of doing what they say they can do.
There are three basic quality levels of Chinese products:
- low quality destined for the Chinese domestic market – these factories compete on cost not quality
- middling quality destined for the home and less affluent export markets
- high quality, international standard products.
You need to make sure you are dealing with the latter, including the factory’s suppliers and sub-contractors. Ask for reputable client references, but don’t be surprised if none are forthcoming.
A factory ‘outsourcing the outsourcing’ can be a difficult issue to get to grips with. A number of international companies have come to grief not because they chose the wrong factory, but the factory was using sub-standard components supplied by a sub contractor. Components suppliers all too frequently try to use lower quality materials for production to save on costs. If the product you make is complex with many components then this must be a key concern. This is a very common problem and the solution is regular and very strict quality control in the factory in China.
Factories often will not be upfront about their outsourcing. It’s not necessarily a bad thing – it can help to cut costs – but you need to be aware of it because it can complicate quality assurance. If you can, go to the sub-contractor’s factory and see it for yourself.
It can be hard to verify whether a China factory is committed to the labour and environmental standards that you need to be able to sell your products. Arranging a Factory Audit in China before starting to work with a new factory is highly recommended.