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In this article, we focus on Procurement From China. For many years China has been an isolated country where communism ruled the way people approached their everyday challenges. From the Chinese revolution and the Japanese war with China, the attitude of the people started changing. But it was only during the 1980s that China started trading with the western world and opened its borders to foreign trade.
From the time this change in mindset occurred, China has been growing rapidly and has become the manufacturing capital of the world. They are supplying companies all over the world and have incorporated western standards into their companies.
Although China has been trading with the whole world for almost 40 years now, a number of African and specifically South African companies are still very worried about the perceived quality they get from China. They seem to think everything you procure from Europe and the USA (United States of America) is superior and hence they are happy to pay a premium for these products.
This article will thus attempt to explain the procurement process when procuring from China and also explain how to control the quality when procuring from them.
Procurement From China
The first step is finding a supplier in China to procure from. It is to understand the platforms the Chinese community uses. They prefer communicating with WeChat and not Whatsapp although these days they are starting to migrate onto Whatsapp. China does not have Google as it’s banned from China, you will thus have to find a different way of searching for products in the Chinese community. The platform the Chinese use is called Alibaba. For a long time, people from the western world believed that Alibaba is a place where Chinese companies try to scam western companies. But by now Alibaba is one of the biggest companies in the world and suddenly the western world has to acknowledge that it’s a real platform that works for procurement.
Alibaba has also launched AliExpress, this platform allows you to procure once-off products like a retail site and get it delivered at your home address in a few weeks. Products are thus shipped directly from China to your doorstep. This is very convenient and opens China to the world from a retail perspective.
After the platforms are identified to operate on when searching for products from China, the search for quality products will start. Alibaba actually has a verification process that tells you how long the supplier has been registered with them and their status. The best suppliers are tagged as golden suppliers. When using the search function on Alibaba, a number of suppliers will pop up that can provide the products or services with your company needs. You can then contact the suppliers via the platform, e-mail, WeChat or Whatsapp. The Chinese suppliers are usually very quick to respond with technical write-ups, lead times and pricing.
When all the proposals have been received, the shortlisting should start. Taking the quality of the submission, pricing, manufacturing capabilities, quality standards and track record into consideration, a few companies should be shortlisted to provide the product or service.
Once these companies have been shortlisted, it’s important that a physical inspection is done at their facilities. A number of companies offer this service where they are based in China and will do the inspection on your behalf. This can work well, but often the buyers want to visit the facilities themselves to get comfortable with the supplier.
Booking flights and planning a trip to China is not that expensive if you compare the amount of money that could be saved on this project and projects in the future. Work with the potential suppliers you are planning to see and get them to help you arrange the accommodation and domestic travel.
Once you arrive in China, Chinese suppliers usually take care of your group like royalty. They make 100% sure you are comfortable, just make sure you are prepared to eat and drink a lot every evening.
Arrange your meetings before you travel and make sure you leave enough time to visit the factory itself that’s manufacturing your products. If they have a story about why you cannot see the factory, be very careful. Once you are in China and make your way to the factories, you will clearly see who’s the best-rigged company. You often find trading houses that buy from any company in China and then sell to the rest of the world. They only have offices and although they connect you with the factories, it’s better to buy directly from the manufacturer.
A good indicator when you buy in China is the price, people often say that they buy products for less than half the price they pay in South Africa for the products but be careful as this is not the norm for good quality products from China. We have found that you get a big range of products from China, certain products are very cheap and follow no quality control or standards and then other products are more expensive but comply with all the standards and follow stringent quality control procedures. A typical saving that can be expected when purchasing good quality products from China is in the range of 20-30% after shipping and clearing costs have been taken into consideration. This range is what we found from experience in the technical equipment and materials sector, but will probably change in each sector you procure in.
You also find that companies in China are very good at copying each other when you get proposals from 10 companies, the proposals look very similar to each other. One company developed it and all the other companies adopted it for themselves. It’s thus very important that you speak to the technical engineer in charge of the products you plan to purchase to ensure they understand their product and it’s the real deal. Chinese engineers are very clever and practical, and you would find that they usually have one senior engineer that’s in charge of the whole facility.
International codes and standards should be checked by the inspecting parties. Chinese companies usually have all their approved codes and standards on their wall, but it’s also important to ensure this is valid and that they are approved and understand these codes and standards. The bigger companies in China are usually geared towards the export market and comply with all the international standards. The companies would also offer two prices when you ask them to price, the one being for local standards and the other for international standards. The Chinese standards are actually very practical but won’t work if your project is designed to other international standards.
Another interesting fact about Chinese companies is the fact that the government-owned companies are usually the strongest and best companies to procure from. With the Chinese government promoting state capitalism, you find a number of companies that are government-owned in various sectors. These companies are well run and are usually very stable to procure from. It’s the complete opposite when you enter Africa and African companies often wrongly have the African mentality when in China.
Once the inspections have been completed and the preferred companies are chosen to work with, ensure prices are fixed as well as lead times. China is very used to delivering products on time and we have found in many instances that they are a lot more diligent than South African suppliers. Most of the South African suppliers are agents for European and American products in any way, so you get the product plus their markup on it and they don’t really have control over the lead times.
Procurement From China notes on Although the Chinese companies keep to their lead times, shipping is often a problem and identifying the correct shipping and clearing agent is as important for a project. Many of the Chinese companies have preferred shipping agents but if you have found a good shipping agent, it makes sense to use them for all your shipping needs and build a relationship. Clearing the products on the Chinese and South African side can often be a challenge and having a clearing agent that understand the process makes it a lot easier.
As a rule of thumb, we often send a representative to China to ensure the products loaded are correct and that it gets loaded onto the vessel in time. You can also make use of inspection agencies in China depending on your products and lead times.
Payment terms with the Chinese companies are also very important, ensure you only pay a small deposit and the rest of the money once the products are ready to be shipped. You will battle to get better terms than this from Chinese suppliers, but as you build a relationship with them, they also become more lenient towards you.
Once your products have arrived in South Africa, ensure you inspect it and are fully happy with your purchase. If you are not completely happy, contact the suppliers and they will try to assist as far as possible. If the products are in accordance with your requirements, make sure you give feedback to the Chinese company as they really appreciate it.
If you have gone through one procurement cycle from China, you will feel a lot more confident to procure from them in the future. You can also continue to procure from the same company without having to do as many checks each time as you have already established they satisfy your needs.
It often helps to employ a procurement agent that you work within South Africa that handles this whole process for you. You indicate what products you are interested in and the procurement agent handles the whole process until your products are delivered in South Africa. It does cost a bit more, but it makes your life a lot easier and reduces your project risk.