Today we turn five years old. Thanks to many of you, we have been able to grow into Australia’s leading Sourcing Agency, which has allowed Australian businesses to become prosperous and globally competitive.

First, it may occur and we know it does, that you have a great Business idea and decide to import a particular product range. You may have just completed all your market research and feel the excitement running through your veins, as you know by selling this product; it is going to provide you with some very attractive earnings. You may think you know the import industry well and just want to get started immediately!

Well, you can, but wait! Ensure you read this secret before you go any further.

I am going to show you a detailed breakdown of the important components of the ChinaDirect Importing process that has worked successfully for thousand of our clients over the years.

The biggest mistake most people make is not utilizing the first step of:

Research and Tender!

The first two weeks of the process is where all the planning is put into practice. Like anything in business, if you fail to plan, you plan to fail!

Therefore, during the Research & Tender stage, you will need to perform the following tasks:

• Prepare request for Quote document
• Research potential suppliers
• Send request for quote to potential suppliers
• Obtain quotes and evaluate offers
• Qualify and shortlist appropriate suppliers
• Prepare the following reports:

1. Supplier Summary Report – with each suppliers details and contact person
2. Quote comparison report
3. Landed cost analysis report

In this blog, I am going to go into detail of the first and most critical stage of Research & Tender, which is

‘Prepare request for Quote document.’

This is a very important document. Receiving quality products through the importing process starts with your specifications. The more detailed information you give the supplier, the more chance you will have your product produced to the standard you desire.

Including details such as an opening statement, item details, quantity, a size chart, information you need to provide later, questions to ask the supplier, an emphasis on a long -term relationship and a request for a sample are detrimental when requesting a quote from a Chinese supplier.

Here is an example for importing high quality men’s underwear:

• Opening statement: (What kind of supplier are you looking for? Writing a simple statement about this will help provide clarity for you as you begin the process)

For example:

“We seek a manufacturer to manufacture high quality men’s underwear”.

• Item details: (Here you need to provide as much detail as you can for the product you are looking for).

For example:

Item Details

Item:                Men’s boxer underwear with front pouch

Material:           Lenzing Modal/Lycra

Labels:            One small logo, heat pressed on the front of the waistband

One transfer heat pressed on the inside of the waistband at the rear

Quantity:          Approximately 4,000 pieces per order

Colour:            2,000 pieces black

2,000 pieces white

The research you need to complete means getting specific on what products you want to import, how much they cost in a local market to buy wholesale and what kind of quantity you want.

• Quantity: Ensure you do your homework before you send your request for your quote to the suppliers; ensure you advise a quantity for the initial order.

For example: Quantity: 10,000 per order

We recommend you provide a realistic order of what you wish to purchase in your first order. Man of our clients have previously over ordered in their first order and then drop down, thinking that they are more likely to get their preferred suppliers attention. This however, only frustrates the suppliers and is more likely to lose interest in your order altogether.

It is also important to remember that the quote will be priced differently according to the amount of product that you are placing an order for.

• Size Chart: Chinese companies deal with many different countries, exporting to large markets such as Europe and the USA. Because of this, standard sizes are therefore quite different. In order to resolve this issue, your best option is to provide a size chart to your supplier.

For example:

Size:               Waist (cm)                  Waist (inches)

Small                75-80cm                                          30-32”

Medium           85-90cm                                         34-36”

Large               95-100cm                                         38-40”

X-Large           105-110cm                                      42-44”

XX-Large         115-120cm                                     46-48”

XXX-Large       125-130cm                                    50-52”

• Information to provide later

There is certain information which is not critical at this stage, however, which you will need to supply later. For example, details such as a pattern and logo artwork, plus providing sample pieces.

Advise your supplier you will provide these at a later stage.

For example:

We will provide:

• Pattern
• Logo artwork
• Sample pieces for the above (if you are selected as our chosen supplier).

• Questions to ask the supplier

There may be a lot of questions you would like to ask the supplier, but in the request for a quote section, focus on only the following points:

• The suppliers experience and track record in export
• Pricing of products/shipping production
• The product quality
• Suppliers workmanship
• Professionalism of the person managing project/staff
• Willingness to comply with the quality standards provided by you.

The most important tip is to write these questions in plain and simple English. For example to find out their experience and track record, you can ask them

- Has your company exported before? If so, to which country?

• Emphasis on long-term relationship

In the Request for a quote, we strongly recommend you put a great emphasis that this business relationship is going to be a long- term relationship. This is what the Chinese value and it demonstrates to them that you are playing their game.

• Request for sample

During the Request for Quote process, you can request that the Supplier provide you with a sample to show the supplier’s workmanship. Most suppliers are happy to do this for you, but more often than not they will request you pay for the freight.

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The stainless steel market in China has been undergoing a similar powerful growth to that of many other metals over the last decade, and the country has now soared to become the global leader in terms of both demand and production. In turn, this has now boosted its consumption of the raw materials such as Ferro-Alloys and Nickel to a similar top position in the world. Back in the year 2000, China’s raw stainless output was only 690,000 tonnes. However, this was just the beginning of a progressive investment in capacity that raised production to 7.5 million tonnes in 2007, according to the International Stainless Steel Forum (ISSF). Output dipped to 7.1 million tonnes in 2008, however, recovered strongly last year to reach 8.8 million tonnes – a 26.8% rise. With global production put at a preliminary 24.58 million tonnes, China accounted for nearly 36% of the total in 2009. Nevertheless, other sources estimate even higher production and market share. Major expansion projects now under way and coming up in the next few years mean that the country’s total melting capacity will reach 23 million tonnes by 2015, however other sources estimate this figure to be even higher.

The main aim of China’s stainless investments seem to be meeting rising home consumption, not exports, says Adam Panayi, metals analyst at Metal Bulletin Research. In fact, there is small incentive to export because Chinese domestic prices remain high relative to international markets. Since November, prices for 304 grade, 2 mm CR coil have risen from RMB 19,000/tonne to around RMB 24,500 ($3,587)/tonne in early May.

Although China’s exports of finished stainless are quite low, its exports of manufactured consumer goods have, of course, come to dominate large parts of the world, with substantial quantities of stainless exported in the form of finished home appliances and white goods. This sector is the largest market for stainless in China with some 40% of demand, serving not only exports but also the rising living standards of its own population. Industrial machinery and engineering is estimated to be the second largest market, with some 31% of demand, driven by continuing industrialisation. Architecture, building and construction consume about 22%, while transport accounts for 5%.

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Due Diligence is the first and most important step to take in the sourcing process of any product from China. And it plays a vital role in our Stage 1 Research and Tender Service that establishes a solid sourcing foundation by identifying legitimate and reputable  suppliers.  The definition itself tells us what every prospective importer needs to do in order to protect themselves and ensure that their supplier will deliver the products they order as specified. Let’s take a look at how the due diligence process applies to the sourcing and importing of products from China.

Firstly, we see that Due Diligence is a process of investigation; an investigation into the details of a potential investment. And the process of investigation encompasses an examination of the operations and management of the potential investment in addition to the verification of material facts.  If we were to apply this simple definition to sourcing and importing of products from China it would look something like this:

Due Diligence for the Importing of Chinese Products

Process of Investigation – To examine the operations and management of the source of the products that we intend to purchase and verify that they are capable of supplying these products at acceptable levels of quality, consistency, and price. To examine the products  (investment) we intend to purchase in terms of quality and specifications.

Details of Potential Investment – The products in terms of quality, specifications, price, and availability. The supplier of the products in terms of quality control, pricing, production capacity, delivery dependability, reputation and standing within the industry.

The big difference between importing products directly and buying locally is the necessity for a thorough due diligence process that must be done in order to be successful.  Practically all of the enquiries we receive requesting dispute resolution assistance and/or troubleshooting with existing or prospective suppliers are based on the lack of due diligence from the start.  We must remember that finding the product we want is not the problem.  Finding the right supplier who can and will supply consistently over a long period of time is.  This is why we highly recommend prospective importers utilize our Research and Tender Service so as to avoid disappointment and financial loss with an inappropriate supplier in the future. The benefits over time will outweigh the cost of this service many times over.

The purpose of the due diligence process used in our Research and Tender Service is to  ensure that only bonafide suppliers are introduced to our clients.  Below is a simplified illustration of the due diligent process that results in a short list of prospective suppliers that tender for your business.  It is not uncommon for more than 25 prospective suppliers to be investigated and contacted in order to ensure a short list of 4 or 5 qualified suppliers.

I believe there is no other service offered in Australia as comprehensive and flexible as ours. If you would like to know more about due diligence and our Research and Tender Service, please don’t hesitate to contact us.

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If you are thinking that licensing your IP or partnering with a Chinese supplier is a feasible option for your product to reach its potential, then read on, for I am going to give you some major points for licensing your prototype/product in China:

1. Finding a Suitable Partner – Not surprisingly, ensuring you deal with a suitable manufacturing licencee requires the same first step as the importing process – Research & Tender. Making sure that your partner is trustworthy, well established, certified, offering fair market price for your IP, and has good service levels can ensure an easier ride through negotiations.

2. Setting up the Relationship – As I am sure I have mentioned before, Chinese business is all about relationships. When partnering with a Chinese manufacturer or dealing with such an important issue as IP licensing, it it important to remember that these things can’t be rushed. If you are looking at doing it on your own, be prepared for a few trips to China all atleast many months of phone calls and emails. In Chinese culture, often the most important moments of negotiating aren’t on a conference call, but in the 5th or 6th course of a 13 course banquette put on by your Chinese host! Before you even begin doing up a contract, it is important to get to know and build a relationship with your Chinese partner, because that is exactly what they will be looking to do with you.

3. Rules of Engagement: The License Agreement – When implementing your agreement, remember the key word for your Chinese supplier is PRACTICALITY. Knowing what is practical and workable for your Chinese supplier, and implementing that into your agreement is the best way for getting favourable results. Using an Australian or foreign created agreement will often be problematic for a Chinese supplier, and can greatly affect the likelihood that they will sign it. This is where building a relationship with your supplier first, shows its true importance. Having a relationship established, where you have a good understanding of your partners motives and needs, will best serve you when it comes to negotiating your Licensing Agreement.

4. Effective Collection of Payment – Collecting royalies for your IP can take many forms and in some cases can open new doors or opportunities. The most standard form is a percentage of the products sold or a fixed price per item. Arrangements such as monthly or yearly retainers can be difficult for manufacturers to agree too, for they have no different gauge of the potential income. An alternative, and one often sometimes taken by inventors with low capital who wish to sell to there own market, is to have the licensing compensation include receiving the product itself. For many, this can deliver their dream of selling to their own market (e.g. Australia) where significant profits can be made.

The process of licensing or off-shore partnering under you own steam can be long and intensive, even with an IP Protection specialist on board. Saying that, it is possible, however, the process can be shortened and the risk reduce simply by utilizing the support of experienced professionals.

If you would like to know more about the process on Licensing & Royalties in China, please feel free to contact us.

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Having sourced everything from clothes to heavy machinary, we have seen almost everything that can go wrong or right during the sampling stage.

To help you get the perfect sample as smoothly as possible, here are some key milestones, industry norms, and pitfalls that you will need to be aware of when getting your sample made in China:

1. Preparing for the Sampling Stage:

The Chinese are masters of copying, so if you want an exact replica of your current product then send it to them. Often information such as drawings, diagrams and measurements can be ‘lost in translation’; this is why we recommend that you send your prototype or sample directly to the manufacture.

If you are just getting started on your product, then having your prototype made domestically will enable you to have greater control on exactly what you want. Having your prototype made locally often also works out cheaper then doing it in China, given added on-costs such as freight.

2. Selecting Your Sample Makers:

The key to getting that ‘perfect’ Chinese manufacturer is to contact as many as possible. This may mean that after contacting and researching your industry you will have a number of suppliers that you may wish to get samples from. Normally ChinaDirect will narrow the manufacturing candidates down to 6 or so ‘promising’ suppliers. From that group we would normally send request for samples to around 3 suppliers. Receiving samples from at least 3 suppliers will enable you to have a significant understanding of the manufacturing quality China is capable of; and also allow you to compare between a number of company’s before you make a decision on who is best for you.

The reason we don’t send out samples ‘willy nilly’ to all that we have contacted is that the sampling stage can involve a lot of back and forth and can somtimes be quite expensive, especically if you a dealing with multiple suppliers.

3. The Process and the Cost:

As I mentioned before, the sample process can be a costly exercise depending on the product you wish to have manufactured. In most cases, suppliers will charge a sample making fee and this fee is often related to the uniqueness, value, and readiness of the materials needed to produce the sample. Products such as machinery are more complicated then samples for clothing and thus costs may be higher.

When you are trying to work out how many potential suppliers to send samples to, and the costs associated with them, make sure to ask yourself the following questions:

- Will custom moulds have to be made?
- Will the supplier have the exact material I request or will they have to source it externally?
- What about the colour? Do they have the right Pantone Colour Code available?
- Does the supplier currently have the right skill sets and equipment to produce the sample or will it have to be outsourced?
- How long will it take to get a sample made?

Sometimes a manufacturer will be able to supply you with a free or cheap sample if they already have everything needed to produce the item. However, when thinking about getting samples, make sure you think about all areas of the sample’s production and what costs may be forwarded onto you.

To better safeguard and create a level of understanding between you and your potential manufacturers, you may wish to think about using a Sample Making Agreement which contains a detailed description of the product, quantity to be supplied and cost. This agreement also sets out specifically your and your supplier’s responsibilities in regards to the manufacturing of the sample product. For more information about a Sample Making Agreement click here.

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The 1st stage for importing goods is the Research and Tender process. This includes finding and certifying applicable suppliers for your products. This step marks the most important area of the system for importing goods. In order to be effective at importing goods, you have to first build from a solid foundation. It can be simple to find manufacturers online, sites like globalsources.com and madeinchina.com can supply you a wealth of manufacturers for the product you want to import. However! The key issue to realise when importing goods directly from associates of such sites is that generally a few emails is not enough to work out the good from the bad. When importing goods some critical questions and procedures need to be taken. In order to ensure your potential manufacture is right for your business, it will require you to do some background checks.

Some areas worthy of investigating include:

- REPUTATION – Ask for testimonials of previous customers.
- EXPERIENCE IN EXPORTING – Where have they exported to previously? Are they capable of importing goods into western countries? e.g. Australia, Europe etc.
- QUALITY AND WORKERS SKILL – Can they can demonstrate the most complex and high quality merchandise they have produced?
- SERVICE ATITUDE – How fast do they reply to your enquiries? What is the quality of their responses like?
- FACTORY CAPACITY – Are they to small or huge (e.g Minimum Order Quantities)? Are they be able handle bigger orders as your business expands?
- ABILITY TO FOLLOW INSTRUCTIONS – Ensure your potential suppler can clearly understand and follow your instructions and requests.
- WILLINGNESS TO COMPLY TO QUALITY STANDARDS- Ensure that the supplier is committed to developing a long term relationship that includes making sure your quality guidelines are delivered whenever you are importing goods from them.

The first stage for importing goods is normally where the most effort is involved. Before you start investing in the sampling or manufacturing process, it is critical that you first manage the risks involved in importing goods by ensuring you have found a supplier that is trustworthy and right for your importing needs.

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Tariff
A duty (or tax) levied on goods transported from one customs area to another. Tariffs raise the prices of imported goods, thus making them less competitive within the market of the importing country.

International Commerce (INCO) terms

Shipping terms set the parameters for international shipments, specify points of origin and destination, outline conditions under which title is transferred from seller to buyer, and determine which party is responsible for shipping costs. They also indicate which party assumes the cost if merchandise is lost or damaged during transit. To provide a common terminology for international shipping, the following INCO terms have been developed under the auspices of the International Chamber of Commerce.

Cost, Insurance and Freight (CIF)

The exporter pays the cost of goods, cargo and insurance plus all transportation charges to the named port of destination.

Cost and Freight (C&F)

The exporter pays the costs and freight necessary to get the goods to the named destination. The risk of loss or damage is assumed by the buyer once the goods are loaded at the port of embarkation.

Ex Works (EXW)

The price quoted applies only at the point of origin and the seller agrees to place the goods at the disposal of the buyer at the specified place on the date or within the period fixed. All other charges are for the account of the buyer.

Free on Board (FOB)

The goods are placed on board the vessel by the seller at the port of shipment specified in the sales contract. The risk of loss or damage is transferred to the buyer when the goods pass the ship’s rail.

Free on Board Airport (FOB Airport)

Based on the same principles as the ordinary FOB expression, the seller’s obligation is fulfilled by delivering the goods to the air carrier at the specified airport of departure, at which point the risk of loss or damage is transferred to the buyer.

Transportation and Delivery Terms

The following are common terms used in packing, labeling, transporting and delivering goods to international markets. They are in addition to the above INCO terms.

Bill of Lading (Ocean or Airway)

A contract prepared by the carrier or the freight forwarder with the owner of the goods. The foreign buyer needs this document to take possession of the goods.

Certificate of Origin
A document that certifies the country where the product was made (i.e. its origin). A common export document, a certificate of origin is needed when exporting to many foreign markets.

Commercial Invoice

A document prepared by the exporter or freight forwarder, and required by the foreign buyer, to prove ownership and arrange for payment to the exporter. It should provide basic information about the transaction, including description of goods, address of shipper and seller as well as delivery and payment terms. In some cases, the commercial invoice is used to assess customs duties.

Customs Declaration

A document that traditionally accompanies exported goods bearing such information as the nature of the goods, their value, the consignee and their ultimate destination. Required for statistical purposes, it accompanies all controlled goods being exported under the appropriate permit.

Customs Invoice

A document used to clear goods through customs in the importing country by providing documentary evidence of the value of goods. In some cases, the commercial invoice (see glossary entry) may be used for this purpose.

Ex Factory

Used in price quotations, an expression referring to the price of goods at the exporter’s loading dock.

Export Permit

A legal document that is necessary for the export of goods controlled by the Government of export country, specifically goods included on the Export Control List.

Freight Forwarder

A service company that handles all aspects of export shipping for a fee.

Insurance Certificate
A document prepared by the exporter or freight forwarder to provide evidence that insurance against loss or damage has been obtained for the goods.

Landed Cost

The cost of the exported product at the port or point of entry into the foreign market, but before the addition of foreign tariffs, taxes, local packaging/assembly costs and local distributors’ margins. Product modifications prior to shipment are included in the landed cost.

Packing List

A document prepared by the exporter showing the quantity and type of merchandise being shipped to the foreign customer.

Pro Forma Invoice

An invoice prepared by the exporter prior to shipping the goods, informing the buyer of the goods to be sent, their value and other key specifications.

Quotation

An offer by the exporter to sell the goods at a stated price and under certain conditions.

Financial and Insurance Terms

The following are the most commonly used terms in international trade financing.

Consignment

Delivery of merchandise to the buyer or distributor, whereby the latter agrees to sell it and only then pay the exporter. The seller retains ownership of the goods until they are sold, but also carries all of the financial burden and risk.

Document of Title

A document that provides evidence of entitlement to ownership of goods, e.g. carrier’s bill of lading.

Letter of Credit

An instrument issued by a bank on behalf of an importer that guarantees an exporter payment for goods or services, provided the terms of the credit are met.

Letter of Credit (Confirmed)

A local bank confirms the validity of a letter of credit issued by a foreign bank on behalf of the foreign importer, guaranteeing payment to the local exporter provided that all terms in the document have been met. An unconfirmed letter of credit does not guarantee payment so, if the foreign bank defaults, the local exporter will not be paid. Local exporters should accept only confirmed letters of credit as a form of payment.

Letter of Credit (Irrevocable)

A financial institution agrees to pay an exporter once all terms and conditions of the transaction are met. No terms or conditions can be modified without consent of all parties.

Open Account

An arrangement in which goods are shipped to the foreign buyer before the local exporter receives payment.

Partnership, Alliance and Market Entry Terms

The following expressions define the various types of partnership or alliance arrangements as well as methods of market entry common in international trade.
Agent

A foreign representative who tries to sell your product in the target market. The agent does not take possession of and assumes no responsibility for the goods. Agents are paid on a commission basis.

Distributor (Importer)

A foreign company that agrees to purchase a local exporter’s product(s), and then takes responsibility for storing, marketing and selling them.

Franchise

This is a more specific form of licensing. The franchise is given the right to use a set of manufacturing or service delivery processes, along with established business systems or trademarks, and to control their use by contractual agreement.

Joint Venture

An independent business formed cooperatively by two or more parent firms. This type of partnership is often used to avoid restrictions on foreign ownership and for longer-term arrangements that require joint product development, manufacturing and marketing.
In a specifically American legal context, however, a joint venture is a collaboration between two companies to carry out a particular, individual project. The venture lasts only as long as the project does and is governed by the partnership laws of the state where it was formed.

Licensing

Although not usually considered to be a form of partnership, licensing can lead to partnerships. In licensing arrangements, a firm sells the rights to use its products or services but retains some control.

Trading House (or Company)

A company specializing in the exporting and importing of goods produced or provided by other companies.

Legal Terms

The following are some of the more common legal terms encountered in international transactions.

Arbitration

The process of resolving a dispute or a grievance outside of the court system by presenting it to an impartial third party or panel for a decision that may or may not be binding.

Contract

A written or oral agreement which the law will enforce.

Copyright

Protection granted to the authors and creators of literary, artistic, dramatic and musical works, and sound recordings.

Intellectual Property

A collective term used to refer to new ideas, inventions, designs, writings, films, and so on, protected by copyright, patents and trademarks.

Patent

A right that entitles the patent holder, within the country which granted or recognizes the patent, to prevent all others for a set period of time, from using, making or selling the subject matter of the patent.

Trademark

A word, logo, shape or design, or type of lettering which reflects the goodwill or customer recognition that companies have in a particular product.

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We all know that products are simply cheaper in China, and that in most cases the countries capability to produce quality items depends only on your own ability to manage your supplier. But what about intellectual property? Can you keep it in China?

The reason why China was the focus of the world for copying, didn’t stem from the suppliers themselves, rather from the rest of the world.

In most cases, copies of a product aren’t a result of suppliers actively searching for products to copy, rather they are presented with a product from an ‘outsider’ who is looking to make money from their cheaper manufacturing costs.

This doesn’t mean IP piracy does not exist, but you should treat the protection of your intellectual property as if you were in your own ‘western’ country.

To help protect your IP, here are our TOP 10 Infringement Risk Reduction Strategies:

- Agreement in Chinese law – Non Disclosure Agreement: Invest in a proven and practical Non Disclosure Agreement. To eliminate confusion ensure that it is in both English & Chinese. Click here to find out more.

- Patent Protection in your Target Market: Think about the markets you will be selling too, and apply for patent’s in those countries.

- Conduct Regular Audits: Regularly review your manufacturers operations to ensure they are not selling extra runs of your product, or dealing with your competitors.

- Flooding the Market: Offer your product to the market at a high volume and low cost. This can help to discourage copying.

- Key Components: Keep the manufacturing of key product components internal or separate from your main manufacturer.

- Own the Tooling: Purchase the tooling used for the manufacturing of your product. This means you can take it with you if the relationship with your supplier goes pear shaped.

- Include IP Clauses in Contracts: Always ensure that whenever a transaction is occurring, your IP is included in the agreements.

- Continuously Innovate: Always make sure you have something different and new in the pipeline (don’t just use the same model forever).

- Attend High Profile Sourcing Events: Trade fairs are a great opportunity for you to scout for copies e.g. Canton Fair.

- Seek Professional Advice: Experience within mainland China is key. Places like Hong Kong have slightly different laws.

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