7 China purchasing, supplier mistakes to avoid

By Ping Wang

From poor communication with detailed components specifications and not partnering engineering and purchasing teams, to incorrect use of procedures for bidding and purchase orders in China’s electronics marketplace – learn to avoid common mistakes working with Chinese suppliers and vendors. perspective on Chinese electronics market

CHINA’S ELECTRONICS SECTOR is a marketplace full of competition. Booming opportunities are accompanied by guidelines and regulations in both culture perspective and government control point of view.

Ignoring any of these will bring troubles to you and make you frustrated.

Things may go wrong even if everything looks perfect at the beginning. It is not because you have not chosen a right partner / supplier, but because some minor aspects you did not address properly turned into concerns or unfortunate mistakes.

Below are seven mistakes to serve as reminders, as well as some ideas on how to avoid the mistakes, when working with suppliers in China’s electronics industry. (See: Managing China manufacturing supply chains)

Mistake 1: You are unable to embrace changes
China is an ever-changing marketplace. Chinese technology suppliers and vendors are always ready to embrace new opportunities and because of this, their business profiles could change frequently.

Suppliers define their business strategy, future growth points and seek new partners regularly. Chinese suppliers are willing to work with customers innovatively and adjust their own strategy accordingly whenever possible. The Chinese professional is used to changes because change happens all the time in China.

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New changes can bring new opportunities and new cooperation models. However, if you stay away from changes, you will have less chance to obtain the best value from your Chinese suppliers.

You should not take for granted that a supplier selection and fair value analysis you performed one year ago will still be valid the next year.

You are encouraged to always investigate new suppliers that can meet your needs since new suppliers are emerging almost daily. You should also investigate new business capabilities, or areas of new expertise, with your existing supplier diligently in order to further leverage your relationship — cooperating with them in new areas possible.

Make the effort to book time to talk to Chinese suppliers and understand their new business areas, and strategy revisions, periodically. It is always important for you to understand the supplier’s most up-to-date competencies to better work with them.

Enjoy exploring Chinese suppliers. Enjoy opportunities brought to you by changes.

Mistake 2: Forcing brainstorming and misunderstanding not being direct
In meetings with your suppliers, you ask for their core competencies. You want to understand whether your supplier can meet your product specification expectations and other concerns like meet schedule and delivery challenges.

You are happy to receive a positive answer which could be “Yes, we can do that” during the meeting conversation. But, later you may find out your supplier cannot work with you on this commodity, or schedule, due to some reasons.

Chinese people seldom say “no” which they consider as totally give up an opportunity or showing they are not professional enough to take up the task.

When delivering a message, Chinese seldom express themselves in a direct manner. Instead, they tend to work on the most important points at the very end. Not like western people, who brings up the issue at the very beginning, brainstorm then recap in the end. (OEM Exclusive: Request list of EMS/ODM providers anywhere in China or the greater Asia region)

Based on my observations, Chinese are not used to brainstorming explicitly in a meeting.

Only one out of ten Chinese feel comfortable to fully express their thoughts and opinions in a meeting.

The rest nine feel better to discuss with each other and express ideas to manager after the meeting.

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I suggest the best way to work with your Chinese suppliers is to brief them in meetings on issues without forcing an answer right away. Leave time for your suppliers to do offline discussion which would be much thorough and fruitful. Then you can schedule another meeting afterwards to gather input. This would ensure a reply which is less likely to be broken in the future.

Mistake 3: Requirements and specifications that look good to you – may not be

Chinese are shy to ask questions and would like to show expertise without bothering the customer. Hence, even if they do not ask, they may have different understanding on the specifications you provide.

I have never encountered the case where supplier starts to produce a part before confirming the exact parameter requirements with customer.

When components / parts specification and parameter is considered well-known industry standard, Chinese tends to investigate by themselves instead of asking customer to clarify.

When you purchase technology hardware and electronics or components that needs to be customized by your Chinese supplier, make sure your engineering team and procurement team meet together to exchange ideas and thoughts before engaging the Chinese supplier.

Procurement understands the subject and goes through each requirement specification with the supplier under technical team’s help. Make sure that the Chinese supplier understands your requirement details well before they start manufacturing.

Mistake 4: You avoid bidding in China to your peril
In some countries or regions, electronics components or commodity pricing and terms could be well-defined for certain items. Or, suppliers are well-designated to serve specific territories or fields. Bidding may not generate much value in such situations.

While in China, our markets could be more competitive due to the existence of a large number of producers and resellers.

Hence, bidding is more likely to be of help per my observation.

Chinese suppliers are relatively more flexible and used to bidding compared with other regions and countries. They are also used to competition and are willing to provide better pricing once they see competition is there.

In the Chinese culture, favors are always reciprocal and there is expected to be win-win in the long run. When a supplier offers a special best price in a bid, that supplier aims to win you as a customer and build up long term cooperation with you in the future and make more profit in exchange in the long run.

Mistake 5: Misunderstanding purchase orders while you think email is a contract
Email is considered a legal document in the US. In China, email can also be considered a written document as long as parties do not expressly claim to exclude it.

The party who provides an email as written document has to prove it is authentic before it can be accepted.

Hence, email is not a contract, naturally. And, it is better to execute mutually-signed contracts to set up work scope, prices, terms and conditions clearly.

In China, to prevent risk, buyers and suppliers are used to signing off a scope-of-work (SOW) before buyer releases purchase order (PO). Commercial terms specific for the project, as well as some non-commercial legal terms if necessary, will be defined in the SOW. Back-to-back terms should also be well defined.

Purchase orders can be generated electronically or by paper. It is convenient if supplier can receive and acknowledge PO via the Internet through a Web portal. Chinese suppliers are ready to use these channels.

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Mistake 6: You place value of best price bidding over long term relationship

When comparing with western countries, Chinese suppliers are more ready for bidding, Chinese suppliers do cherish customer and feel more comfortable if they build up partner relationship instead of one-time purchase in the long run.

It will be a balance of your procurement supplier selection policy and relationship buildup strategy with one, specific, Chinese supplier instead of always changing with lowest bidder.

Chinese principally want to understand the whole picture and context before action.

It is always mutually beneficial for both parties to clarify the whole picture of cooperation in advance.

You are encouraged to share needs and supplier management strategy with your Chinese supplier and seek for their help to adjust their own strategy or develop new channels to satisfy your needs.

Chinese have top-down management style and are used to top down thinking methods as well.

Chinese will start from the big picture, investigate and elaborate the best ways to cooperate with customer, and then take action to make things happen. Hence it will be good that you communicate with your Chinese supplier thoroughly and frankly with your supplier’s management team. Do introduce the big picture so suppliers can be more ready to help.

Mistake 7: You fail to understand tax and purchase order payment issues
This is the last but not least point. It comes at the end of your Chinese transaction, however, could make the whole purchase a failure at the end. Be sure to understand clearly of these requirements even before you talk to a supplier about your requirement. You must clarify these points before place PO to your supplier.

For two Chinese legal entities to deal with each other, supplier should always provide a business tax or value-added tax (VAT) inclusive quote.

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Responsibility for withholding tax should be bear by which side is negotiable and total amount of the payment should include tax.

You may need to understand the tax type your supplier’s quotation carries before placing PO if you have special requirement for one kind of tax reasonably while your supplier cannot offer. In this case, electronic invoice is feasible due to government tax controls.

Special invoice paper should be used to carry tax implications. And each supplier has their own invoice total amount and quantity limitation assigned by the Chinese government.

I hope this article is helpful to you. I am interested in your comments you share below.
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