Reveals Secrets of China Sourcing: The Risks

Michael Bloom    June 1, 2023

Do you need to source materials from China but hesitate because of the risks? Many companies find themselves in this position as more and more manufacturers outsource their production overseas. The good news is that sourcing from China doesn’t have to be a blind leap into the unknown.

Every international venture indeed involves some risk, but understanding these risks can help put your mind at ease about exploring a new market for your industry. If you’re interested in this new venture, Sinotech’s President, Michael Bloom, will give you some ideas about the different risks and how to mitigate them.

Mitigating the Risks for a Successful Outsourcing

The main reason brand leaders should source their products from China is price. Price is the main reason and motivator, and it significantly outweighs the risks that sourcing from this country carries. The risks exist, and we must be aware of them to prepare for any potential problems properly.

The different types of risks related to outsourcing:

  • Quality risks
  • Factory selection risks
  • Negotiation risks
  • Logistics risks
  • Intellectual property risks
  • General commercial risks
  • Payment risks
  • Political risks

Knowing the different points of the risks listed above will give you an idea of how to work around them once you’re ready to source your custom-engineered products from China.

Quality Risks

Poor quality can shut down your entire operation in a snap; quality risk is the most common problem.

It can affect the following factors:

  • Customer safety
  • Relationship between you and the supplier
  • Financial standpoint

Quality is a well-known issue in China, and monitoring the quality of your products to minimize quality risk will help you surpass this problem.

Factory Selection Risks

Another risk you’ll encounter is factory selection, especially if you’re looking for a manufacturer to produce specific products. They will often say yes to your questions about their capabilities even if they can’t do it, leading to failure. The only answer is to carefully audit these factories to help you choose the ideal manufacturer who can fulfill your projects.

Negotiation Risks

When negotiating with your supplier, there are also risks you need to be aware of. You don’t want to settle on something you know isn’t worth it during negotiation. You’ll also need interpersonal skills and analysis to get the lowest price possible for your products.

Apart from analysis and skills, you must understand their culture to comprehend their thought process fully. By understanding their cultural traits, you can successfully do business with Chinese manufacturers without issues.

Logistics Risks

Since you’re getting your products from China, you will most likely face these problems:

  • Delayed deliveries
  • Wrong orders
  • Damaged products
  • Unexpected costs

The logistics part is something you sometimes can’t control, but there are things you can do to prevent it from happening.

Intellectual Property Risks

Intellectual property theft is rampant in China. However, their patent law is becoming more stringent, and their legal framework is improving. To overcome this issue, you must be aware of the Chinese laws regarding intellectual property rights.

By understanding the rules and regulations, you won’t need legal counsel. Plus, there are some techniques that you can apply to your business to protect what’s rightfully yours.

Payment Risks

You want to pay for your products securely to prevent risky financial losses. To avoid this problem, you can use secure payment methods such as letters of credit instruments to ensure your payments are safe from malicious intent.

At the same time, knowing how to add more leverage will keep your transactions free from issues. Building trust over time can also give you peace of mind in future transactions.

Political Risks

The political landscape of China can also be a hindrance in your outsourcing operations. For instance, China and the USA are not on the best terms. In addition, they have an internal turmoil that can affect your production. External and internal risks must be addressed, and solutions are available for you to form a partnership with Chinese manufacturers successfully.

General Commercial Risks

Since defective products are common, especially in outsourcing, you will want to know how to handle them once they happen to you. Changes in the manufacturer’s management and capacity will undoubtedly affect you too.

You must find out how these will be handled and what corrective actions are necessary to protect your business from these risks.

Providing Practical Strategies to Work Out the Risks

Success in outsourcing is possible as long as you know how to handle the risks that come with it. To ensure your business is safe, moving on to the following few chapters on our website is the best course of action.

If you want to learn how to manage and mitigate these risks, complete our online form to contact us. We’re here to help, and we can provide practical strategies that you can use for your outsourcing activities.

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