Agentur Frischis already working with numerous suppliers who, to our current knowledge, have all the necessary certificates and licenses. However, the check must be repeated regularly, as the laws and rights of other manufacturers can also change constantly. In addition, we know that many manufacturers are reliable and that their products are of good quality. Through our local contacts, e.g. China, Argentina, Indonesia, we are also informed about current political and economic events and are also informed about laws and regulations. Of course, we cannot be equally well informed and advised for every industry and every product, but your risks are significantly reduced through our cooperation. You can get legal advice from our recommended lawyer at any timeThe most important principles when importing from a new supplier from China for the first time (also applies to suppliers from some other Asian countries, such as India, Indonesia and Vietnam)

– Never assume a fixed delivery date and plan a lot of time – Only invest as much as you are willing to lose – Never sell goods that have not yet been delivered to you from China and checked.

Importing from China is a hurdle that always brings new surprises. We are ready to go through this hurdle race for you.

Risks when importing from China (global sourcing)

Scientific elaboration by David Frisch, Managing Director of the Agentur Frisch

Consulting GmbH & Co. KG from Berlin.

1. I. growth market China

1. II _. Risks of importing from China, risks of global sourcing

III. China import opportunities, global sourcing opportunities

Many textile companies have now disappeared from southern China, since production in countries such as India, Pakistan, Bangladesh, Vietnam and Indonesia has become much cheaper than it is currently possible in China. Just a few years ago, most of the textiles available in the West were still “made in China”. We have to deal with whether China is still a low-wage country, in any case, China has to deal more and more with competition.

1. growth market China

Even if we still often hear in the media that the economy in China is weakening, it should not be overlooked that this only means that the economy is growing more slowly, but growth is still there. On April 15, 2016, this was given as 6.7%.

Source: SPIEGEL ONLINE – 04/15/2016

In Germany, economic growth is not even 0.2% and yet Germany is one of the largest and most successful economies. This shows that a country’s economic growth and the strength of the economy cannot necessarily be used as benchmarks for one another. The economic development in China is still gigantic if you look at the construction of new airports and new railway lines and the increase in passenger numbers at the airports in China by about 70% since 2010. In 2015 alone, 45 new airports were built in China and 88 airports were expanded enormously. (Tille 2010, p. 7)

However, since China is also adapting more and more to Western competition in terms of quality, it can be expected that China will also shed its cheap image in the long term, which will of course also be reflected in the prices.

1. Risks of importing from China, risks of global sourcing

Legal frameworks are a risk that is often underestimated, but can have a serious impact on global sourcing. In Beijing For example, the annual number of new passenger car registrations has been reduced from 50,000 to 20,000, which has become a significant risk for the automotive industry. The 20,000 approvals were awarded in a lottery process. Other Chinese cities such as B. Guangzhou or Shenzhen are already thinking about similar framework conditions. (Kuhl and Grundhoff 2011, pp. 17 to 18)

Another risk that cannot be calculated is the currency risk. However, the risk can be minimized by purchasing foreign currencies and diversifying suppliers from different countries of origin.

As the distances to the suppliers increase, the freight costs can normally increase. This can usually only be compensated for by larger purchase quantities or new framework agreements with the haulage companies. Deliveries from third countries also incur customs duties. Further risks are regulations on increased customs duties to protect the European market, such as e.g. B. the anti-dumping duty on bicycles from China. Due to the longer replacement times, a higher cash flow is required, since the minimum stock in warehousing is much higher than with short delivery times, e.g. with suppliers in Germany or other EU countries. The ability to plan is also made considerably more difficult. To make matters worse, suppliers from Far Asia often have very long production times, which are often unexpectedly extended. This can be offset by larger stocks or higher minimum stocks. However, if the supplier delivers on time, bottlenecks can occur in the warehouse, especially with seasonal goods. The scheduling problems for orders from third countries do not only affect the possibly longer production times of the manufacturer, but also a longer delay at the customs authorities (in the exit or entry customs) or delays in shipping can lead to longer delivery times. If quality problems occur that are only recognized by the customer, subsequent deliveries are rather difficult. On the one hand, returning complaints is often disproportionately expensive, and post-production and subsequent delivery also take a long time. If the subsequent delivery is then carried out by air freight due to the time pressure, the costs are higher than the “cheap” sea freight costs. (Faust and Gan Yang 2013, p. 38)

According to the experience of the managing director of theAgentur Frisch International Consulting GmbH & Co. KG from Berlin, Mr. David Frisch, management consultant with a focus on trade in China (hereinafter referred to as Frisch), trade with third countries is particularly affected by the language barriers and ignorance of the mentality of the foreign business partners more difficult. The distance also often makes it difficult, since the personal negotiations that are usually important on a regular basis are difficult to carry out. Due to the completely different mentality, however, it would often be necessary to clear up difficulties in a personal conversation. The effort of negotiating by email is very time-consuming and expensive, especially when negotiating with Chinese suppliers. Frisch has found that purchasing in China is completely new territory for many buyers. Different laws, legal opinions, quality requirements, standards, manners and rules alone often make it very difficult to create a corresponding harmony between buyers in Germany and suppliers in China in the first purchasing negotiations. From Frisch’s experience, the many ancillary costs involved in procurement from third parties are not sufficiently appreciated by buyers. One should already be aware that purchasing from a third country is only worthwhile if the purchase quantities are correspondingly large. Ancillary costs such as logistics, quality assurance and money transactions are particularly important for small purchase quantities. But even with larger order quantities, all ancillary costs as well as customs duties, port fees, insurance and the payment of import sales tax should be calculated in advance in order to be able to realistically assess the savings potential. The higher capital expenditure due to higher order volumes, taking into account the long delivery times by sea freight, should not be neglected.

Supply contracts in China are often interpreted in such a way that many agreements can easily be circumvented. Chinese suppliers often do not admit to mistakes and pass on all additional costs and quality problems to the customer unless something has been specifically agreed on this. Therefore, supply contracts should always be detailed and well thought out.

Every importer should also be aware that, by law, he is counted as a manufacturer in Germany when importing into the EU economic area and must accordingly deal with the EU standards and import regulations himself. This includes, among other things, observing the product labeling requirements, the packaging ordinance, the electronic waste ordinance, the battery ordinance and the regulations of the EU, which often have to be complied with, especially if the product requires a declaration of conformity (CE), e.g. in most electrical appliances or toys. Supplier development is important for every customer who wants to save costs. Suppliers who already produce in high quality in third countries and can meet the necessary guidelines here are usually no longer at the low-cost level. Low costs can often only be realized in the long term, in which manufacturers develop independently. However, it should not be forgotten that many certificates in China can simply be “bought”, according to Frisch. In practice, when looking for suppliers are often

90% of the certificates sent by the suppliers are “counterfeits”. The suppliers in China are often not aware that the buyer in Germany really wants to comply with the regulations, but there is often the thought “The main thing is that there is a certificate”.

According to Frisch’s experience, very few importers give any thought to the risk of transport damage or general liability during transport. Often the buyers do not even know which Incoterms the goods will be shipped with. The Incoterms specify the place of performance and the transfer of risk for the goods, i.e. also the point in time until when the liability lies with the supplier and from when on with the buyer. If the supplier takes over the transport to the port of Hamburg (CIF), the supplier can also have special fees set at the port of Hamburg, which then surprises the buyer in Germany and the supposedly cheap transport unexpectedly becomes a high proportion of the costs.

In order to achieve the prices that buyers in Germany are often looking for, manufacturers in third countries are often willing to cut back on quality. The high cost pressure that buyers in Germany often spread leads to inferior quality, since manufacturers in Asia try to meet the cost pressure, but the costs can often only be saved by reducing quality. Suppliers in China often miscalculate the first delivery, which can lead to sudden price increases for the second delivery, in not uncommon cases of up to 30%. (Feisel 2008, pp. 27 to 28).

The biggest risk when importing from China is probably the quality. It is not uncommon to hear of recall campaigns by large manufacturers of goods “made in China” and everyone who imported from China was certainly affected by quality problems to a greater or lesser extent. This is often due to poor employee training. However, many importers have failed to improve this. The now specially trained employees apply with the new ones

References from well-paying factories owned by foreign investors and that leads to high turnover. Well-trained employees in China are difficult to keep for those who want to produce at low cost, since the chances for well-trained employees in China to get very well-paid jobs are very good.

Of course, product piracy in China is also a risk, but that often doesn’t matter as long as you have a good relationship with the manufacturer and continue to be supplied by him. One’s own brand must have achieved a certain status, i.e. international recognition, so that the supplier takes the trouble to sell the customer’s product as “their own” or as a plagiarism. It is a greater risk to import a product offered by the supplier without further examination, since the Chinese often copy the product designs and the risk of design protection violations is therefore naturally high. A look at the research database of the trademark and patent office should therefore not hurt before importing, in order to reduce the risk of a sales ban or claims for damages.

III. China import opportunities, global sourcing opportunities

One of the main reasons for getting into global sourcing is the desired reduction in material costs. A larger pool of suppliers abroad can also strengthen the market position and thus also the ability to negotiate with suppliers. If the suppliers are spread across different countries of origin, supply bottlenecks due to new regulations in one country of origin can be minimized. As alternative delivery options are always available, it is also possible to react more flexibly to insolvencies or other possible delivery failures.

Many manufacturers in China produce the product entirely in-house, Frisch knows that some manufacturers have the molds and tools on one floor, the plastic housing on another and all the technical components of the inner workings of the product on another. Of course, this creates transparency for the buyer, there are savings on logistics in China, since fewer suppliers are involved, and if problems arise, it can be tracked more quickly at which production stage the problem occurred and how the error can best be avoided in the future can. But especially in the points

“Quality assurance”, “quality techniques” and “documentation of production”, many Chinese suppliers still need a lot of training and consultation. This should be an incentive for the importer to set up joint process optimization with the Chinese supplier, which will be beneficial for both sides for long-term cooperation. (Faust and Gan Yang 2013, p. 56).

As a management consultancy for the China import , the agency provides support with the entire

Services related to purchasing from China.