In this blog post, we use the Q&A format to explore the unique set of challenges and opportunities that Australian importers face when importing directly from China.
Australia China Sourcing: Australia buying from China
The content below is based on an interview conducted by Felicity Quigley of Australia’s Fashion Equipped with China Sourcing Veteran Mike Bellamy after the Australian International Sourcing Expo in Melbourne where Mike was the keynote speaker on the topic of China Sourcing.
FE: Tell us a bit about yourself what services your companies provided for Australian clients importing from China.
MB: Thanks. I’m originally from the US but spent about 25 years in Asia. During that time, I ran a sourcing agency and set up a legal services company. Both companies were focused on servicing Australian clients that needed help in China.
PassageMaker Sourcing Solutions: This company sets up virtual sourcing offices and virtual factories for clients that want a team on the ground but don’t want the headaches and managerial burden of setting up an office or factory in China on their own. Essentially, the PassageMaker facility is leveraged to offer clients “their office inside our office” or “their factory inside our factory”.
AsiaBridgeLaw: This company manages legal issues in China on behalf of the clients. Our lawyers do things like:
• Set up bilingual contracts
• Conduct due diligence
• Register, monitor and enforce IP
• And a big part of the business is helping clients get their money back from Chinese companies when they break the terms of a contract, violate IP rights, miss production targets, send defective products or fail to honor warranty terms.
FE: What is it like living in China, helping Australian customers sourcing from China?
MB: China has changed a lot during the three decades I was living there. The good news is that China quality is no longer an oxymoron, the bad news is that it still requires decent due diligence and auditing to find that good supplier. And once you find the supplier, you still need to have a system in place to manage the vendor if you care about quality, lead-times and pricing.
So yes, Chinese suppliers have come a long way in terms of professionalism and quality standards, but you still have to roll up your sleeves and get involved with the production details if you are importing anything customised or complex into Australia.
FE: You have been a frequent visitor to Australia, keynoting at the International Sourcing Expo and sharing your wealth of knowledge with Australian businesses. What are some of the things you have learnt about the Australian market along the way?
MB: Our US clients selling into the big box retailers want high quality but they also want it at a low price in exchange for high volume.
For the most part, Australian clients who are focused on the Australian market, want high quality but they are reasonable in their pricing expectations and willing to pay a bit more in order to get a high-quality product.
Relatively speaking, the Australian market is small, yet the quality expectations are high.
Because of minimum order quality issues, when we talk customized product, small volume/high quality is a tough nut to crack, unless you are willing to pay a premium and willing to work closely with the suppliers to ensure they really understand the specs and do your order right.
The good news is that in Australia, unlike in the US, the consumer is willing to pay a premium for a quality product. So, the challenge for the Australian importer is the MOQ, the strong point for the Australian importer is that you may have more wiggle room than a US company when it comes to earmarking funds for product development, vendor coordination and quality systems.
FE: You provide some amazing video tutorial in your China Business, Law and Sourcing Library that cover the A to Z of Sourcing from China. What motivated you to put this free content out there for Australian companies who want to learn how to source from China?
MB: Right before the Global Financial Crisis hit, my group of companies had a growth spurt and we went from 2 dozen employees to 200 in China. In order to retain high operational standards, I spent almost a year reviewing or creating every SOP, template and checklist in order to have a comprehensive Operation Manual for my sourcing agency.
The manual served my company well and I realised that other importers, sourcing agents and manufacturers would find my Operation Manual of value, so I took a three-month sabbatical from work and went to a beach in Thailand to write a sourcing guide book based on PassageMaker’s Operation Manual. A few years later, the proceeds from the book were used to helped pay for my pool villa in South Thailand!
Once the book was out there, to my pleasant surprise, I started getting a lot of requests for interviews with the media, such as CNN, Financial Times and CNBC. I also started doing a lot more speaking engagements. Those speaking engagements were fun and it was cool to get paid to speak to business organisations and trade shows in places like Australia, Dubai, South Africa, India, the US and of course China/HK.
But I realised I could reach a much larger audience if I simply recorded my presentations and posted them on the internet. That’s why I created the China Business, Law and Sourcing Library which helps Australian companies deal with China.
I hate those YouTube teaser videos where the video blogger just gives you a little taste of the topic then hits you up to buy a book or service. I also hate the jokers that have weak content on important topics.
So, I went a different path, I put entire training sessions on the web. My thinking was that if an Australian company is just getting started or thinking about getting started buying from China and importing into Australia, they could watch my “crash course” for free. Then if they were serious about learning more, they could check out a bunch of 90-minute seminars that I recorder on topics such as finding and managing suppliers or protecting intellectual property. And if they still wanted more, perhaps they could consider some very affordable options such as buying my guide book on China sourcing or even hiring me as a consultant.
But I’m OK with giving heaps of free information in hopes of getting a few paid customers down the road.
Once I started putting relevant, high-quality, informative content out there on the web for free, I started to get requests for syndication, and that further expanded our reach.
I made so many mistakes early in my career in China, I’ve got plenty of lessons to share with Australian companies buying from China! Hopefully the next generation of businesspeople heading to China can learn from my mistakes and avoid pitfalls while implementing best practices.
FE: So, Why China? How and what are the benefits for Australian importers when Sourcing from China compared to the rest of the world?
MB: That’s a loaded question because it really depends on the product lines you are sourcing and the volume of your orders.
If the orders are really small, Australian importers won’t have much luck getting in the factory door in China.
And if your product is very labor-intensive, like shoes and socks, know that those lines have already started to migrate out of China to places like Pakistan and Bangladesh.
China is all about the “value-added” products these days.
But thanks to the internet and online directories, it’s not hard to figure out where to look for suppliers. Just type in your product into the major online sourcing platforms and pay attention to the countries and even specific districts of the given cities where the suppliers are showing up.
FE: At Fashion Equipped we work with clients who have varied business models, from clothing to accessories and lifestyle products. Many of them are Australian companies looking for their very first manufacturer in China. What are the challenges for Australian companies?
MB: Regardless of the exact product, most Australian importers will face a common set of challenges, such as:
- Which country of origin to consider
- How to validate the supplier’s credibility
- How to protect their Intellectual Property
- They may find it hard to find a supplier that will work with low MOQs
- Often don’t even think about Supplier Agreements and Contracts.
I mean they don’t think about contracts until it’s too late. That’s too bad because it doesn’t cost that much to register IP or get a bilingual contract drafted.
Details on how to solve those challenges would take up more time than we have in this interview, but I am happy to let your readers in Australia know they will find comprehensive answers at the China Business, Law, and Sourcing Library
FE: Based on all the things you mentioned that need to be done, how much time would you suggest an Australian start-up allow to establish a new supplier, initiate sampling and validate that that supplier is a good partner to place an order? Specifically, with the Australian Fashion/Clothing sector in mind.
MB: The challenge of your industry is that the product life cycle is so tight. Especially if the item is seasonal. If your product is highly customised or new to production, then give yourself lots of time, I’m talking months to a year. If your product is a simple tweak or “me too” item, then you may be able to get things done in months.
Once your supply chain is up and running, you can expect much faster turnaround times. But if you are an Australian company importing from China for the first time, build in as much padding as possible into the target lead times.
FE: We often tell our clients that without a good supplier, they simply don’t have a business. When it comes to relationship management and ensuring business is good for everyone involved, what advice would you give Australian companies that want to sourcing direct from China?
MB: Relationship is very important but it’s just one piece of the puzzle.
The holy trinity of China sourcing is Relationship, Contracts and Monitoring. You need all three.
For example, some Australian buyers spend a lot of time monitoring suppliers by using quality audits, lab testing, and product inspections. Perhaps if they had a better contract with a penalty for poor quality, the supplier would do a better job of monitoring their own quality and the Australian buyer wouldn’t need to spend so much time and money on Monitoring.
In terms of the relationship component of the equation, I have some great suppliers that I never met in person. But I am a great client for them because I place large orders, pay on time and have very clear product specifications, listing in the contracts, for them to follow. Thus, we have a great relationship without having much of a personal relationship at all. If you don’t match those criteria, you may need to spend more time getting to know each other so that the supplier feels comfortable doing business with you.
FE: To wrap up today’s interview, could you touch on some of your Top Tips that a new Australian business must follow to minimise their risk and achieve the best outcome when sourcing in China? Including Quality Standards, Quality Control and Outsourced Inspections?
MB: If I had to pick 5 top tips, please please please don’t forget the following:
• Don’t jump in bed with the first supplier you meet. Be picky and do your research. Visit them if possible BEFORE you place the order. And if they are on SupplierBlacklist, run away as fast as you can!
• If your order is greater than 2000 $AUD, you are crazy not to have the following in place: written PO, bilingual contract, detailed quality standards. In other words, if it’s important to you, it better be written down and confirmed in advance by all parties. Don’t assume your supplier, or even your 3rd party inspection agent, knows your product details like you do.
• Make sure the Chinese name on the contract is the same name on their business license and bank account. Don’t be the sucker to sign a contract with one entity then send money to another. Happens all the time when you place an order to a Chinese factory then send the payment to a personal account or their HK trading arm. Good luck getting your money back if something goes wrong.
• Don’t give anybody in China the opportunity to put you out of business because of mistakes they may make. I mean that you should be afraid to start small and really make sure the supplier can make the product before you place that big order and put your company’s future in their hands.
• And finally, if your supplier breaks the terms of your agreement (poor quality, missed lead times…) don’t walk away without a fight. Foreigners CAN get a fair shake in a Chinese court.