Sourcing in China – the “world’s factory” — should continue to provide an attractive option for manufacturers for some time. Even as its labor costs rise, China’s large and skilled work force and overall business ecosystem are key factors that set it apart as a manufacturing hub, particularly for start-ups.
Things China Makes (2011) – Information from China’s Dominance in Manufacturing (The Atlantic, 2013)
|Product||Volume||Share of Global Production|
|Personal Computers||320.4 million||90.6%|
|Air Conditioners||109 million||80%|
|Energy-Saving Lamps||320.4 million||80%|
|Solar Cell Production Capacity||21.8 gigawatts||74%|
|Mobile Phone||1.1 billion||70.6%|
|Shoes||12.6 billion pairs||63%|
|Cement||1.8 billion tons||60%|
|Pork||51.5 million tons||49.8%|
|Coal||1.8 billion units||48.2%|
|Shipbuilding Capacity||76.6 metric tons||45.1%|
Sourcing in China has its challenges: At the same time, its very size makes China a challenging place to do business. New suppliers of varying quality appear every day – how do you find a high-quality and reputable partner? Travel to and around China to investigate potential suppliers can be expensive and frustrating. Yes, it is essential to conduct the proper due diligence. Photographs and claims made over the Internet or sent via email are not an effective way to select a business partner.
Sourcing in China can be advantageous: Here are some simple rules to follow as you identify and develop relationships with potential partners in China:
- Visit the factory – it is essential to know where the product is being produced and under what conditions.
- Ignore fake websites – see above.
- Use local counsel – In 2015, the World Bank ranked China’s court system (enforcement of contracts) 35th out of 189 countries. China’s court system works when it is used properly. Contracts with a Chinese partner need to be written in Chinese and provide for enforceability in Chinese courts in accordance with Chinese law.
- Know shipping requirements — Products being shipped without a license get seized at the border.
- Establish export compliance procedures – Protect yourself and your company’s reputation through compliance procedures that ensure the product meets legal and market requirements.
Contact us for help with reviewing your contracts and developing your export compliance procedures when sourcing in China.