Outsourcing veteran’s top five tips for start-ups working with China

Mike Bellamy launched his outsourcing consulting company in China in the late 1990s, after realising most suppliers were facing the same issues.

Bellamy, who will be speaking at the Australian International Sourcing Fair in November, has grown his business, PassageMaker, to over 150 employees. He says the questions and concerns about working with Chinese factories haven’t changed despite people increasingly looking to Chinese suppliers.

“Everyone wants to know how to research the market to get the best price, how to ensure the quality of the product and how to protect their intellectual property,” Bellamy says. He shared his top tips with StartupSmart.

How to get the best price for your product

Bellamy says research is critical to finding the right options and negotiating the best price. He adds too many international buyers opt for the first English speaking factory they find, and miss out on getting the best price.

“I recommend you take three to four weeks contacting 50 factories across China. China is not just one place and market. There are different provinces with different specialities and worker rates,” Bellamy says.

Once you’ve narrowed the options down to a shortlist, Bellamy says the key to get the best possible price is knowing exactly what each is offering and going into negotiations prepared.

“A lot of international buyers who are used to doing business with people like themselves can be intimidated because China is so different,” Bellamy says. “My philosophy is don’t try to out-negotiate the Chinese seller, out-research them. If the factory sees you’ve done your research, the negotiation is easy.”

Put the human effort in to get the best relationship and results

While the Chinese can be hard negotiators and the cost of ongoing transport to China is not insignificant for start-ups, Bellamy says putting the effort in to build strong relationships is worth every cent.

“It’s important to be seen as a person rather than as a purchase order number. You don’t need to come here every week to build a bond of trust or be fluent in Chinese, but the open and soft side of business goes a long way in China,” Bellamy says.

Bellamy adds that visiting in person, inviting factory leaders out to your home town, sending Christmas cards and encouraging your kids to be pen pals are all great strategies for developing strong ongoing relationships.

“I would like to stress that the vast majority of suppliers in China are a pleasure to deal with. Easily 95 out of 100 I’ve dealt with are fantastic, many are family-run. But we made the effort to go out there and find the right people in the first place,” Bellamy says.

Find the right supplier by asking the right questions

For start-ups organising their first manufacturing round, finding a supplier with experience in your area is critical, says Bellamy.

“They’re not out there to rip you off, but some are newer than others. So if you’ve got a buyer that’s new and a supplier that’s not got a lot of experience, it’s a perfect recipe for disaster. Most of the horror stories you hear happen because both were outside their comfort zone,” Bellamy says.

Start-ups need to be aware of the fierce competition for Chinese factories, and check your preferred supplier has actually produced a similar product.

“In China, Asia, or anywhere there is serious competition, suppliers will exaggerate. ‘Yes we can make that’ is very different from ‘yes we have made that’, so check their output,” Bellamy says. “With enough resources and time, you could have a space shuttle built in China, but you want someone who has done it before.”

Register your intellectual property as soon as possible before scoping out suppliers

While many countries have a first-to-market intellectual property system, China has a first-to-register system. Bellamy says this is good news and bad news for start-ups.

“This is great because it means you can use an English speaking intellectual property advisor and protect your product before searching out a supplier,” Bellamy says. “The bad news is that it’s easy for your competition to register your ideas as well. That could be another importer, or your supplier, so you need to register it ASAP.”

Bellamy says a major mistake many small business owners make is sharing their product design with suppliers, before registering their intellectual property.

“The first step before going out and talking to factories in China is to register your IP at home and in China. A lot of small buyers make the mistake of going to trade shows with their product and engineering design so you can get a good quote, but that’s all they need to knock your product off,” he says.

The critical times to investigate to ensure quality

Bellamy says the most important time to investigate the quality of production is before the final payment that will release the goods and ship them to Australia.

“A buyer in Australia or US is crazy if they don’t do a product verification, especially if it’s your first time with this factory,” Bellamy says. “If you don’t have the expertise for quality control, hire a third party who will go and visit the factory at critical times. The big one is pre-shipment, before you make that final payment to the supplier that releases the goods, someone needs to check the delivery matches what you ordered.”

He adds that checking before the final payment means you won’t end up in a very weak bargaining position with the factory once the goods are delivered and you realise a defect or issue.