Sourcing from China

Related entries: Trading

There are a number of ways to approach the issue of sourcing, depending on the aims, the complexity of the supply chain, trade volume, and the resources available to manage the process.

While it can be challenging, developing and implementing a workable sourcing strategy is a critical business issue. In addition to practical advice and information, there are a range of services available – from supplier identification and due diligence investigations, to negotiation support, on-site inspections, and full logistics management. Options include:

1. Direct Sourcing: Research and manage suppliers directly, with ad hoc assistance as required (e.g. research, communications, quotations, visits to factories, trade shows etc.). This is a possible solution where requirements are clear and relatively simple.

Fees and commissions would depend on the project scope, but costs start at US$700 a day (fixed fees can be quoted, 3 days is usually the minimum for sourcing research).

2. Sourcing Agent: A sourcing agent can be useful in a number of ways. They may have existing relationships with factories and local governments and so can quickly identify suitable suppliers. They are also on hand to communicate with factories on product development and production / delivery issues.

Agents tend to work on a commission basis, or a commission plus a percentage share of savings from a specified target price to the final purchase price. The research can be done for a fee, on the basis of exclusivity for a fixed period (e.g. 2-3 months), or a mix of both.

3. Sourcing Office: Where there are complex development issues, a number of suppliers, and large volumes, it can be beneficial to have a local sourcing office. It is possible to set up a full office, set up a project office for the development period, or to use the services of a local company that will hire and manage a dedicated member of staff to serve your needs.

Running a local representative office can be a big expense, but using a local companys services (i.e. managed, fitted office, with a dedicated staff member) can be very efficient.

4. Other Services: In the process of identifying suppliers, we strongly recommend carrying out independent due diligence (even if working through an agent). Services include credit and background as well as factory audits, and inspections during / post production. We can also recommend local legal and accounting firms, and logistics services such as warehousing, consolidation and freight services, as required.

Planning, due diligence, and communications are essential to success of any sourcing venture, but are areas where many people have fallen down in the past. We have wide-ranging experience in China, and can proved expert local support to protect your interests.

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