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Manage China Outsourcing effectively with China Confidential

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China: Land of Opportunity

The rapid globalisation of industry and manufacturing supply chains has increased competition as companies take advantage of global price differences for products and services. This has provided organisations with unprecedented opportunities to source the best product, at the lowest price, from suppliers around the world.

Companies who manage to successfully organise their global supply chain can achieve significant cost savings, with two-thirds reporting average savings of more than 25%1. Yet despite these potential benefits, many companies fail to manage outsourcing effectively and are reluctant to take advantage of one of the most prolific and cost-effective suppliers operating in the global market - China.

The question is, why not? 93% of businesses have admitted that supplier quality assurance is their main concern when it comes to sourcing from China2. Negative press coverage relating to China's manufacturing industry has reinforced these feelings, but is this reputation deserved?

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What Can Go Wrong...

As occurs everywhere, there have been incidents where companies and individuals working in China's manufacturing industry have acted improperly. Unfortunately, these incidents have unfairly tarnished China's reputation without giving due credit to the many companies who operate at the highest standards.

In 2011, investigations were conducted into alleged 'steel stretching' operations, where steel reinforcement rods are illegally stretched and the excess length cut off and sold3. This diminishes the diameter of the rod, weakening it and making it unfit for its original purpose.

This practice was widely reported on and taken as a sign of Chinese manufacturers' disregard for safety standards, but the coverage was disproportionate to the problem and not representative of the industry overall.

Other issues reported by those who have outsourced to China include products being made incorrectly and to the wrong material specifications, in the wrong size and in incorrect quantities.

... and Why?

One common cause of such issues is the use of sourcing agents. Agents are often not working in an official capacity, yet earn commission from suppliers5. They can be unwilling to be strict with suppliers and risk this financial relationship, and have been known to simply disappear when a problem arises, leaving the company with little recourse.

Another main cause of problems for companies outsourcing to China is a lack of communication between the supplier and the procurer6. Some manufacturers may alter product specifications in order to cut costs, without notifying the client.

These redesigned products may not meet the standards required by the procurer, who doesn't notice the change until their product fails.

Cultural customs and conventions are a significant informer of business practices in China, and it can be difficult for individuals unfamiliar with these conventions to understand and respond appropriately. Language barriers and long distances between the outsourcing company and the Chinese supplier can further exacerbate these difficulties.

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How to Get it Right

Engaging the services of an intermediary can help bridge language and cultural gaps and avoid these issues.

China Confidential specialises in managed China procurement, working with companies who are currently outsourcing to China or looking to do so in the future. Staff are bi-lingual and able to assist with face-to-face supplier selection and contract negotiation.

Production specifications are provided in a format that Chinese suppliers will understand and, because China Confidential project managers are fluent in their language, suppliers feel comfortable contacting them to discuss concerns or questions as they arise.

By allowing China Confidential to take charge of your procurement cycle, you can avoid the risks and stresses of doing business in an unfamiliar environment and feel confident that your needs are being communicated to the supplier effectively and without confusion.

Everything is handled in a transparent manner, with invoices paid direct to the factory, and all shipments are required to be inspected and authorised prior to shipping. China Confidential tests against international standards using certified laboratories and can even provide a video report so clients can visually inspect their products prior to shipment.

Outsourcing to China may seem intimidating, but reaping the significant cost benefits is well within reach of most organisations as long as they have a sound strategy in place and engage an experienced guide to help them navigate this lucrative landscape.

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