Many small-business owners sense the opportunity for more economical and efficient suppliers abroad and thus, turn their gaze to China. Fostering new business relationships with Chinese suppliers is an involved process — one should consider undertaking extensive research, visiting potential suppliers in China and sampling their products until both the consistency and quality are not in question.
But is this where the relationship building process ends? If your goal is to create a lasting and sustainable business relationship, then no, the real due diligence starts now.
Know exactly who you’re dealing with
Most business owners make the potentially dangerous assumption that the person or company they are dealing with, is the actual manufacturer. But in reality this may not be the truth.
In China, businesses have to be issued with export licenses, granted by the government, in order for them to be allowed to export their products directly to the end customer. In the absence of this license, manufacturers need to conduct their sales via a licensed agent, who acts as the face of the business externally.
Unfortunately, the majority of Aussie businesses do not realise that they are in fact dealing with agents. This ultimately creates transparency issues from day one.
Why is this a problem? While many agents provide a value-added service, you definitely need to know who is actually creating the goods you’re purchasing — should an issue ever arise. Nothing is worse than having paid a deposit for goods into an account or business name that doesn’t match the manufacturer producing the goods.
Also going through an agent means that many businesses are paying at least 10-20 per cent more than they would if they were dealing directly with the manufacturer.
It’s important that whenever small businesses begin to foster a relationship with a manufacturer or agent, that they’re asking for proof of incorporation and export license documentation. This way, businesses know exactly who they’re dealing with, ensuring they’re reputable and licensed to sell the end goods being purchased.
Learn to respect their culture and their way of doing business
Making connections in China isn’t where the relationship building process ends. It’s important for business leaders to take the time to learn local culture and how businesses operate.
Why? Pre-empting any cultural periods of holidays, like the Chinese new years period, can be an excellent way to show your supplier that you are willing to invest time into your business relationships. Depending on whether the holiday warrants a gift, putting a local twist on a gift can show that it’s not just a token effort.
The Chinese traditionally follow the principles of Guanxi, the system of social networks and influential relationships which facilitate business. This ideology defines how people conduct business in China. Within this cultural trend, business executives are expected to develop a relationship first, then do business after — a concept some foreigners fail to fully understand, which results in an inability to build truly lasting relationships with suppliers.
To further this point, much of business is conducted around food and drink, once you find a supplier you like, you should offer to take him out for dinner and drinks. Who knows, your supplier might want to reciprocate the gesture with a discount at a later date.
Maintaining strong relationships with Chinese suppliers goes beyond just the initial due diligence and contact. It takes time, effort and cultural sensitivity to effectively manage your supplier network, but the benefits will always far outweigh the immediate effort it costs you.
Brett Isenberg, General Manager, Octet