If you have done regular business with Chinese suppliers, you have certainly noticed how eager they are to push prices up. And you probably felt like you got cheated sometimes.

In this article, I am going to focus on cases where the supplier increases the price of an order they already accepted — a very upsetting situation for the buyer.

1. How they raise prices

I think it works out this way most of the time:

The boss looks at the prices negotiated for current productions.

He says to the salesperson “we will not make money on this order. We need to increase the price.”

It is always better to invoke an external fact, upon which their company has — supposedly — no control. So, the boss chooses an excuse of this type.

In the email from the salesperson to the customer, it often sounds unconvincing.

The customer generally cannot check the reality behind the excuse, and it ends up as a “you will do as I say or the order needs to be cancelled” contest.

I heard many types of excuses over the years. Here are a few:

The main material used for production got more expensive since we worked on the quotation (but no, we cannot give you a breakdown of our costs);

The VAT rebate we get from the government was reduced;

Someone in our company quoted too low for this order and we are going to lose money.

2. Why they raise prices

As I wrote above, many times the reason involved is a joke. And, to be sure, the supplier never comes back to the buyer with a price decrease when components get cheaper. It only goes one way — up!

It means there is a lot of insincerity, and importers feel that. BUT there are reasons why prices often need to be raised:

Chinese manufacturers often run on very slim margins. If you leave little profit to the supplier, you know the temptation to bump the price up is very high (especially after you have spent lots of time developing a new product, and after you have pre-sold the shipment to your customers).

They have a poor quotation process, and make mistakes regularly. When it comes time to buy the components and the accessories, these mistakes appear clearly.

Price competition is brutal. Often, those suppliers that sell at a low price and then ask for a raise after the deposit was wired are those that get more customers and grow up. Others notice it and emulate that bad behavior. I am not trying to excuse them, but it is a fact.

3. How buyers can avoid this situation

If you do not want to suffer a price increase for a current order, I see a few solutions:

Working with a sourcing company that will absorb the price increase and will not dare to renegotiate the price they gave you. I know several importers who work with faithful intermediaries to avoid managing all the little problems and tricks from manufacturers.

Getting a lawyer to write a contract (preferably in Chinese) that can be enforced in China. That is a good source of leverage if you crossed all the T’s and dotted all the I’s with a good lawyer.

Finding a backup supplier, so you will have alternate options when the original supplier raises price to you.

If this problem happened to you and you did not take any of the above-mentioned measures, the best is to gather some information first. You can pretend that you need to inspect the components before taking a decision. If you see that they have already received some components that will be hard to use for another customer of theirs, you are in a stronger negotiating position.

If you want to mitigate price increases in the mid-to-long term, though, the best is to cultivate a few backup factories that will put pricing pressure on your main suppliers.

4. A word of caution

Should buyers try to contain price increases?

I would avoid dealing with these issues in a “this is what you signed and there is no way you can change these terms” fashion. Refusing a price increase is dangerous.

Your Chinese manufacturer will either go back to you and ask to be able to raise its prices considering its greatly increased costs for Stainless Steel, or it will secretly start replacing some of the stainless steel in your widget. Which would you prefer?

shipping FAQ

Elksourcing：Advices in Situations to Ship LCL Rather Than FCL

Apr 10, 2021 Elksourcing, express by 露露

Some importers try to optimize their freight costs. They always make sure they will fill a container up.

Most buyers, however, simply buy what they need. They don’t want to carry extra inventory that might not get sold. If they have, say, 22 cubic meters it is not a problem — it will nearly fill a 20′ container up. So, they book an FCL (Full Container Load).

Now, what to do if you only have 12 cubic meters of products to ship? Most freight forwarders offer to consolidate your shipment with those from their other clients. Each client books LCL (Less than Container Load), and then the forwarder arranges to put it all together in one container.

What is the cut-off point between LCL and FCL? If you have less than 14-15 cubic meters (half the volume of a full 20′ container), it is more interesting to book LCL.

What are the drawbacks of LCL?

1) It may take a little longer

LCL is often in transit for a longer period of time, due to the freight company having to load and unload numerous companies’ items. It is also possible that your shipment will be delayed whilst the shipping company find enough items to fit the container.

Another cause of delay, is the risk that other goods inside the same container are blocked by Customs. One client told me that in one case he lost his products completely this way (because Customs had a problem with OTHER products).

2) The forwarder won’t bring a full container to the factory

Either you pay the forwarder to send a truck to collect the products, or you ask the supplier to bring the goods to the forwarder’s warehouse (at their costs if you buy FOB).

3) Insurance is more expensive

When shipping by LCL you are likely to be paying more towards insurance then you otherwise would with FCL. Although the difference in charges is not large, it can add up on the balance sheet as the common 1.5% cost of insurance when using FCL can rise to 3% or more when using LCL.

4) Your cartons might get damaged

If you ship soft goods, and your loose cartons (not on pallets) are placed aside/under heavy hard goods, your products might get crushed. I would advise to ship LCL with stronger protections: a pallet + reinforcements on the edges and corners.

Shopify Tutorial

Elksourcing：Minimize Online Sourcing Risks by Supplier Verification

Apr 10, 2021 Elksourcing, sourcing by 露露

Sourcing experts are strongly emphasizing the need for even the most experienced buyers to ensure effective evaluation measures when selecting suppliers in China—particularly when sourcing online.

This follows the abrupt departure of Alibaba’s top two executives after their disclosure that the company’s sales staff “intentionally or negligently” allowed fraudsters to set up more than 2,300 verified storefronts.

Let’s face it, we are all still going to be looking online for new suppliers. So, what can you do to protect yourself if you cannot fly to China to investigate every potential supplier that you come in contact with?

The online sourcing experience should look something like this:

Search only for suppliers that have been verified by a third party outside of the website that hosts their information.

Pay for background information and document confirmation for any potential supplier before you make any commitments or pay a deposit.

Include in contracts with your supplier mandatory QC visits during production and before the balance of payment is made at the completion of the project.

Have a lab test your products to confirm quality and components.

Confirm and verify container loading to see that what you have ordered, tested and checked are indeed what are being shipped.

While all of this might sound like a lot of time and money to be spending on relatively seamless online ordering, it is less than the cost of losing a 30 percent deposit, and takes less time than finding a completely new supplier and starting all over again.

So how do you know if you should really be paying for these additional services? Here is a list of clues to help gauge a supplier’s level of risk:

The supplier:

Will not provide copies of licenses or documentation on request.

Does not want you to visit its factory.

Asks for cash and provides no guarantee, e.g. cash transfer via Western Union

Is not easily or consistently available to talk with or meet outside of the online forum.

Will not or cannot provide you with references or client referrals.

Provides an oddly large range of either products or services.

Will not allow third-party QC.

If your chosen supplier is not satisfactorily providing this information, search for alternatives or at least get reputable third parties involved in the process to help protect your investment.

Factory visits or audits continue to be critical in the supplier verification process. Buyers can opt to go to the plant themselves or engage a third party to conduct supplier audits, which could include an assessment of manufacturing and QC processes and confirmation of compliance with various industry, safety and environmental standards.

Exaggerating the truth in terms of factory capabilities is one thing, but claiming to be a factory and disappearing with the buyer’s money is a whole different level of fraud. But that fraud has been happening for years in China—nothing new.

What makes the situation at Alibaba so shocking is that Alibaba markets itself as a safe place for buyers to find suppliers and provides a host of services to put them in touch with each other. But now we learn Alibaba staff cooperated with the thieves to scam the buyers.

Most of the scams happened to buyers who purchased $1,200 or less of high-demand electronics at low prices. This makes total sense for a number of reasons. Small buyers generally do not have the experience to know when they are getting scammed and fail to do their due diligence in advance.

Unfortunately, because they may be on a tight budget, many small buyers do not utilize third-party QC to check the quality of the goods before final payment is made.

In summary, pray for the best but plan for the worst. Do your due diligence when selecting a supplier and tie payments to delivery.

How To Import From China

Elksourcing：4 Important Things for Buying from China

Apr 10, 2021 Elksourcing, supplier by 露露

From time to time, some small importers find me, tell me the story that unacceptable Chinese products are received, and ask me how they can force a Chinese supplier to refund an order.

My response is usually “forget it, and do things right on your next order (make sure you read about best practices).”

There are four important things to keep in mind when you buy from China:

1. Preproduction samples are not indicative of average quality

Your supplier might show you nice samples, and pretend that they come from a past production of that factory. Do not think that’s what you will receive.

Even if that’s true, who knows if they were the nicest pieces out of a batch that counted 90% defectives? Don’t forget, most assembly and finishing operations are done by hand in low-labor-cost countries.

2. After you have paid, you have no more leverage with your supplier

What will a supplier tell you if you complain about their product quality/performance, after the order was shipped and paid in full? They will probably promise to give you a discount on your next orders. But do you really want to give them more orders?

If you want to avoid bad surprises, you should check product quality (and probably also the production status) in the factory, before shipment.

The details depend on your mode of payment:

If you pay by bank wire, make sure you confirm quality before you transfer the remainder.

If you pay by letter of credit, don’t forget to include a third-party inspection company’s certificate in the list of required documents.

3. It is pointless to start thinking about arbitration after production

Did you know that a purchase order is not a contract? Actually, it will often protect the seller in a court of law, not the buyer.

Did you know that countries such as China do not apply judgments from American courts? If you need to take legal action against a company that owns assets only in China, you’d better have a contract that is enforceable in that country (and that was properly chopped by that company).

If you need a contract, go and see a specialized lawyer and ask for an enforceable OEM agreement. Before you wire your deposit/open your letter of credit, not after.

4. Qualifying a supplier is necessary, and so is monitoring production

A British importer told me he had received unsellable products, and he has not checked quality before shipment “because it was a Gold Supplier“.

Unfortunately, suppliers pay to get a “Gold” status on Alibaba, and it means nothing for the importer. The sad truth is that nobody certifies the past performance history of a supplier in China. It is entirely up to each buyer to pay for his due diligence… or to take huge risks.

The solution is simple, but it takes the importer money and/or time:

Asking for customer references, paying for background checks, and auditing factories is the solution for qualifying a supplier.

Being present in the factory or sending third-party inspectors is the solution for monitoring production.

How To Import From China

Elksourcing：How to Evaluate Chinese Suppliers?

Apr 10, 2021 Elksourcing, supplier by 露露

When sourcing from China, one of the most important things you as a buyer need to do is to make sure you are working with the right supplier. So, where do you start?

Define your ideal supplier. This is unique to each buyer and depends on a number of factors, including price, quality and lead time.

Define your location. Where factories are based should also play a role in supplier evaluation. While factories in China’s northern and western provinces have lower manufacturing costs, the quality is often lower. Those located along the coast and in the southern region have higher production outlay but the quality is generally better. Note as well that the farther inland you go, the more expensive your logistics costs will be.

Look in the right places. B2B websites can help buyers find suppliers, but it’s highly recommended meeting suppliers face to face. Further, always do your due diligence and verify suppliers before working with them.

You must visit the supplier yourself or pay someone to do it for you BEFORE you wire any money.

Narrow down your choices: You should narrow down potential suppliers based on non-price attributes before initiating contact. This is basically sending an email to ask for product-specific information, including price, minimum order quantity and lead time. Below are some points that are often overlooked when requesting for quotations.

Mould charges

Payment terms

Quality requirements

Bill of materials

Packaging

How to identify a legitimate manufacturer:

Avoid factories that refuse to list the name or location of the production facility.

Focus on factories that can clearly show manufacturing experience with your particular product or production method. They should have samples and quality documents readily available if they are a real factory.

If you are able to arrange a factory visit:

Do your contact’s business cards match the factory staff’s information? If the cards do not match in name, color and address, then your contact is probably a middleman.

Do the people at the factory clearly know your contact?

Look for clear information about operation size, equipment and staffing.

Be wary if the supplier offers a very large range of products.

Be aware that polished English skills do not reflect production skills. Often the most polished websites are set up by trading companies.

Ask for ownership papers of the factory.

Be explicit that the production location may be audited by you in person.

Spend more time on the production floor than anywhere else.

Visit as many sites as possible.

Inspect workflow systems for efficiency and check whether they are actually practiced.

Test your supplier‘s understanding of your product’s requirements.

Request samples to be sent to you, to your exact specifications (pay if necessary).

Evaluate the factory’s quality system.

How To Import From China

Elksourcing：Tips About Negotiating with Chinese Suppliers

Apr 10, 2021 Elksourcing, negotiating by 露露

So, you have narrowed down your list of potential suppliers, done your due diligence and decided on one factory to manufacture your product. But before you sign that contract, you would most probably need to negotiate quality, price and payment terms.

The first thing you need to make sure is you are talking to the decision maker. Quality and production concerns, for instance, should be discussed with engineers, managers and QC personnel, not salespeople. It is also better that you have your own translator, one whom you have briefed in advance about terminology and what to expect.

Before you start negotiating terms with the supplier, be aware of the following:

Face to face meetings are always the best way to communicate.

Most factory representatives will not tell you “no.”

There will always be problems-you just will not know about all of them.

Do not confuse being polite or even “yes” with agreement.

The more time you spend in the factory, the better quality product you will get.

You must take care of all legal issues at home and in China before you do anything else.

Contracts are rarely the final words.

Save all phone call notes, photos and emails.

Keep your processes and communications consistent.

Be prepared to renegotiate everything.

Negotiating quality terms:

Specify every single component and standard you can think of.

Clearly communicate every aspect crucial to your finished product.

How your final product should look, feel, fit and function.

All internal, external labeling and user instructions.

Packing instructions (quantity, assortment, packing materials).

Overcome language barriers by communicating with:

Photos.

Technical drawings.

Written, translated instructions.

Physical samples are the best.

Negotiating price and payment terms.

Do your own research on prevailing prices before you start negotiating.

Make a road map for better terms; consider a 30:40:30 payment scheme.

Your payments, penalties and shipping dates should be contractually tied to QC reports.

Be careful if transferring funds to a private account or a third-party trading company.

Shopify Tutorial

Elksourcing：Key Points About Managing Quality Control in China

Apr 10, 2021 Elksourcing, quality, supplier by 露露

Regular, consistent and independent quality control is possibly the most important part of the buying-from-China experience. Some key points:

Write it, confirm it, repeat it, and confirm it again with someone in authority. Get things repeated back to you from the people responsible for each step.

Get things signed.

Determine what is essential, what should happen, and what would be nice to have. But do not tell your supplier anything is less than mandatory.

Safety, industry and customs standards are mandatory.

Product features are crucial.

Specific attributes that are not defined by law or function are important.

QC essentials

In-house QC is not independent. It is profit insurance for the supplier. Either do QC yourself or pay a third party to do it for you. But do it no matter what.

Check incoming materials/components, semi-finished goods, packaging and finished goods.

Unless you can wait for a complete product re-do with no financial penalties, final QC on the last day before product is to be shipped is a complete waste of time and money.

In-process QC is not a quality guarantee but it is preventive action to identify small problems before they become critical.

Give your supplier a copy of all QC reports, and ask the manager to feedback with corrective actions on found defects.

Who must be involved

Engineers-these are typically the only people that really know what the machines can do and what they can get out of them.

QC and line managers-they have the most direct impact on the daily quality of your order.

Managers-include them or everything else is a waste of time. They have to be the ones to sign off and enforce agreements when you are gone.

Salespeople-they will need face from you when you find out they do not know what they are talking about. You will need to keep them happy since they are the ones that control the price.

Problem solving

The only thing worse than no product is bad product. Negotiate accordingly and have a backup, just in case.

There will be problems-count on it.

Allow the supplier to fix it before you step in-but make sure you are aware of problems and solutions.

Do not wait too long to stop problems.

To find the real problem: Listen, ask, take notes and ask again-there is almost always a public story and a real issue.

Keep detailed notes of every conversation.

Just because you know who is to blame does not mean that you can now solve the problem.

Admit when the problems are your fault and hold the factory to the same standard. Be fair and never be punitive.

The goal is to get finished quality product. Do not go too far in your anger or demands.

Lose a deposit instead of an entire order.

Shipping

The end of a production run can be especially risky.

With other orders waiting to be filled and your deadline approaching, your supplier may:

Rush through your final units to finish on time;

Run out of approved materials and use a substandard substitute;

Tell you production is complete to get final payment.

Before your order is completed and packed, perform a pre-shipment inspection to ensure there will not be last-minute, nonconforming products on board.

Ship safely. You cannot sell damaged or missing products.

Perform a container loading check to ensure:

Cartons contain the proper quantity, size, assortment, etc.

All products are packed safely and loaded carefully.

The container is properly sealed and recorded.

How To Import From China

Elksourcing：3 Main Traps to Avoid for China Industrial Sourcing

Apr 10, 2021 Elksourcing, sourcing by 露露

China industrial sourcing has many challenges. Most of them are a result of the Chinese business environment and the fast pace of the country.

But some problems are self-inflicted by buyers and are not related to suppliers. The three main traps I have seen buyers fall into are:

Buyer improvises a project and launches ill-prepared sourcing missions because they cannot secure the right expertise;

Buyer gets the first steps right but then hesitates for a long time because of the complexity of the project or because of internal conflicts;

Buyer has been waiting for a long time and suddenly gets impatient and makes hurried decisions.

This is how these three sourcing traps play out. I am sure you will be able to relate at least to one of them, even if the cases below are a little of a caricature.

1. Improvise

Someone decides that it is time to source goods from China. The company has no experience but management wants to get the ball rolling and get things done. “We need to improve our margins. Our competitors produce in China. We are late in the game and we need to catch up. This is a question of survival.”

A few people are put together and assigned to a special sourcing team. The new China sourcing initiative is launched.

Sooner or later, trouble starts:

The team cannot identify a suitable supplier;

First samples are substandard and cannot be accepted;

Or worse, quality problems arise after a few initial deliveries.

No one in his right mind will proceed with these suppliers. It seems that the sourcing initiative has stalled and that all is to be done again from scratch.

2. Hesitate

Three years ago, a company launched a China sourcing project for sub-assemblies to be assembled into its main product. For the initial steps, the project team has done pretty well. They have brought in all the relevant expertise from within and have also sought assistance where they needed.

Within 12 months, they identified seven suppliers that displayed the right capabilities, offered interesting pricing and were willing to move forward. The company COO visited all suppliers during an intensive tour and was impressed both by what he saw on the shop floor and by the attitude of the suppliers’ management.

Then things started to slow down. Every time the China sourcing topics comes on a company management meeting’s agenda, participants raise many questions such as:

Are the suppliers really as good as we think?

Will our customers push down our prices if they know we are making these parts in China?

We are far from China, how do we manage these suppliers from this far?

The projects cannot proceed as no one takes the decision for the next step.

None of these questions is a new issue. They were there already at the outset of the project. But now that the prospect of sourcing from China is real, they come up in the discussion all the time without being resolved.

It seems that the sourcing initiative has stalled and that it will take either serious strategic thinking or strong push by the top management to start again.

3. Hurry

The company has considered China sourcing for several years. A couple of people from purchasing have even visited factories they had discovered at various industrial trade shows. But business is so hard these days with the economic crises and no one really got the time to seriously go through the sourcing process.

The wakeup call came one month ago at a tender post-mortem meeting. “We lost mainly because the winner was able to go down in price” says the sales manager. He continues: “They could do this because they buy all their peripheral equipment in China and also source some motors and control systems assemblies there.”

“We gotta move now! “says the GM. “We started exploring China suppliers at least 3 years ago. How come I still have not seen a single order from them. I need this… now.”

Pressure is high. Purchasing department goes back to the files built throughout the last few years. They reactivate the suppliers they had met then. They send RFQ and request samples. The technical department makes a first analysis. It does not look bad.

Before the engineers can make deeper tests and confirm how the product really performs when put in the full system, the company is invited to a large tender in Turkey. Normally a very competitive market. It is decided to use some of the Chinese suppliers to reduce the total cost and protect margins.

The tender is won. Everyone is very excited about it… until project implementation:

Supplier had misunderstood some key requirement in the RFQ and quoted a substandard product;

Supplier can meet the requirement but it will be more expensive;

Delivery is delayed three weeks because of the rework;

Export is trouble too: supplier sells CIF and has selected a cheap forwarder and custom agent with poor service.
The company managed to keep the final customer immune of all this and no damage is done to the reputation. But the total cost of the project proves to be higher than what it would have been with traditional suppliers. And no one is keen about working with China.

It seems that the sourcing initiative has stalled and that it will take lots of work and convincing to restart it.

Conclusion

None of the difficulties faced by buyers of industrial goods in China are simple.

The cheapest suppliers may be good marketers with poor quality.

A good prospect supplier may expect much more business than the buyer is able to generate.

This supplier met 2 years ago was only average, but it may have tremendously improved since then.

Successful China industrial sourcing is both about expertise and about process. When so many things can go wrong, success lies to a large extent in how these aspects are evaluated and addressed. And this takes knowledge, a rigorous approach and time.

Some of the keys to success in China industrial sourcing are:

Get well prepared;

Go through each step thoroughly;

Make clear go/no go decisions, avoid half measures.

Elksourcing：Why Chinese Suppliers Raise Prices of an Order?