Becoming more profitable

Importing from China: what you must know to ensure success

China has been the obvious procurement destination in the past two decades.

However, importing from China is not always as easy as it sounds, and it does not always go smoothly. Foreign businesses must bear in mind some must-knows and take necessary actions before sourcing from China to ensure the process goes as smoothly as possible.

Should you import from China without taking these steps, you may face barriers and challenges that make it more costly and time-consuming than planned.

How to import from China to Australia

  • Check local import tariff and other trade barriers such as quality standards and international certification requirements for import from China. With rising trade protectionism globally, it is highly recommended that companies do a careful cost and benefit analysis before looking at the import option. High import tariffs and other trade barriers may eat all potential profit gained from imports. Also CE, UL or other accreditation and requirements on manufacturers may apply for certain products.  

  • Decide on going directly to manufacturers or dealing with trading agents. Although buying directly from Chinese manufacturers may secure a better profit margin and ensure direct communications with suppliers, a lot of established Chinese exporters operate on a large manufacturing scale and are mostly committed to mass production and “big” orders. Hence, it may be worth going to a trading agent who can combine small orders, secure a better deal and conduct a pre-shipment inspection on your behalf.  

  • Qualify suppliers before you place orders. China has an old term “suitcase company” which refers to illegitimate companies and scammers. In some cases, there are even suitcase companies set up to look like glamorous corporate websites. Therefore, a background check on the company’s legitimacy is a must before you place your first order. China does not have a central point where people can check scammers or legitimate status of all businesses, which makes it difficult for foreign companies to do background checks. However, a general online search and research can serve as a starting point, or for high-value orders, you may hire a consulting firm to conduct due diligence.  

  • Understand Chinese manufacturers and negotiate a win-win deal. China is a competitive manufacturing base. In most cases, export-oriented manufacturers do not have a big profit margin but live on the mere margin gained from returned VAT for exported goods. If foreign buyers do not understand the situation and bargain too much, they may end up buying products of poor quality. This can happen when Chinese manufacturers do not want to lose orders to their competitors, so they must compromise on quality to gain a reasonable profit margin for themselves.

Foreign businesses must bear in mind some must-knows and take necessary actions before sourcing from China to ensure the process goes as smoothly as possible.

  • Communicate with Chinese manufacturers and suppliers on your product requirements again and again, and then triple-check. Chinese companies may not fully understand the product functions, quality requirements, and lifestyles in Western countries and hence may manufacture products to their satisfaction but not to yours. To avoid this, you cannot just check samples, but need to conduct a pre-shipment inspection, especially for the first order. You may consider engaging local agents or production inspection organisations for the pre-shipment inspection.  

  • Ensure a safe term of payment. Chinese manufacturers usually accept 30% deposit and 70% by T/T (telegraphic transfer, a common payment option) upon shipment for a first order. However, this is a risky term of payment for buyers as it is based on commercial credibility rather than stringent third-party guarantee. A Letter of Credit is often a better guarantee for buyers as well as a fair term of payment for sellers.  

  • Protect your intellectual property and don’t make your suppliers your potential competitors. To guarantee quality, many Western buyers generously pass on their technology know-how to their manufacturing partners in China, with little consideration of the potential risk of losing intellectual property and nurturing potential competitors in the global market. Hence, companies need to put an IP protection mechanism in place both legally and commercially, which is far more complex than just having a patent and being trademark registered in China. Companies need commercial advice from China business experts to build a robust commercial mechanism to protect IP proactively.  

  • Acknowledge Chinese cultural nuances and build a long-term partnership. China is a nation full of “guanxi” (relationship), self-pride (especially with China’s rising economic power in the global market), and social functions. Westerners doing business in China usually find themselves exhausted with after-work dinners, saunas, and patting each other on the back while calling contacts brothers and sisters. As the saying goes “when in Rome, do as the Romans do”. To fit into the business environment in China and establish long-term partnerships with Chinese suppliers, Westerners must understand and acknowledge these Chinese cultural nuances, though they do not need to give up their Western cultural identity. Chinese businesspeople especially appreciate foreigners who can say a few Chinese words such as enjoy “ganbei” (bottoms up when drinking), or even quote a line from an ancient Chinese poem.

  • Consider a phasing strategy and other models to source from China. Foreign companies have many options to source from China; source through agents, import from manufacturers directly, or set up an on-the-ground procurement centre in China. A popular model is for overseas headquarters to import from Chinese manufacturers directly at the initial stage and then move on to set up their own sourcing offices in China at a later stage.  

  • Have a contingency plan and back-up suppliers. Never rely on a single supplier in China. Things may go wrong with the suppliers or the partnerships. With back-up suppliers, you have a more stable supply and stronger bargaining power as well.

Importing or sourcing from China is a complicated task in most cases. It is highly recommended that before taking actions to import products from China, businesses develop a clear sourcing strategy by mapping its business strategy, resources and market conditions, and then do homework to identify competent and committed suppliers and manufacturing partners.

Sara Cheng

Sara Cheng

Former Head of International Business, Australian Business Consulting and Solutions

Sara specialises in international business strategy development, international market development, and business investment in China. She has extensive experience in these areas and previously worked for the Australia China Business Council.

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