China is still a choice location for manufacturing operations for many companies around the world despite the recent tariff and trade changes. With the buzz around manufacturing in China and particularly the growth of manufacturing as a industry in other countries trying to compete with China, we decided it was a great time to focus on China with a mini series on manufacturing in China. This is the third and final article in the series. The first described some of the most important provisions to include in Your Chinese Manufacturing Contract, which is vital to your successful relationship with your Chinese manufacturer. The second article discussed the Pros and Cons of Manufacturing in China. This article will focus on finding a reputable manufacturer by providing some ideas on how to find a reputable manufacturer, what to look for in a manufacturer, and what should be included in your request for quotation (RFQ).
Where to look for a Chinese manufacturer:
There are likely hundreds, if not thousands, of Chinese manufacturers that are able to produce your product. So, it’s not a question of whether you can find a Chinese manufacturer, but how to find a reputable manufacturer. Finding a reputable Chinese manufacturer takes time and research, and once you find and narrow it down to a few, due diligence. There are many different ways to look for Chinese manufacturers. To start, you should get recommendations and leads from:
- People and companies within your network
- Industry trade groups or associations
- A sourcing Service Provider
- Your local Small Business Administration or World Trade Center
- International trade shows
- Online directories of overseas manufacturers (Alibaba, Made-in-China.com, China Sources, HKTDC)
- An Internet search
What to look for in a manufacturer:
If you are looking for a manufacturer for the first time, knowing what to look for in a manufacturer is just as important as where to look for a manufacturer. While what to look for will obviously be somewhat specific to your industry or product, there are some universal characteristics you will find in a reputable manufacturer. Below are some important things to look for in your manufacturer.
- Look for a manufacturer that makes similar products. Ideally, the manufacturer you choose specializes in your industry or product type. Some manufacturers will offer to make just about anything, which means the quality may be poor.
- Find manufacturers that have good reviews from individuals and companies that currently use or recently used the manufacturer. Good reviews are crucial to finding a reputable manufacturer. You should seek out reviews from companies you are familiar with, the most obvious place is the person or company that recommended that particular manufacturer. Don’t discount the importance of an online review search. You should also request references from the manufacturer’s bank(s) and current and former customers.
- Seek manufacturers that export to mostly the US or Western countries. These manufacturers tend to have higher quality standards and have already proven that they meet the expectations of Western importers. Furthermore, they are more familiar with Western compliance, e.g., product safety standards and labeling and packaging regulations. The also have experience with the logistics of shipping products internationally.
- Look for manufacturers that are willing to provide you with their business license, documentation of their quality control system, and any other related certifications. These are things reputable Chinese manufacturers are routinely willing to provide to prospective customers.
What should be included in your Request for Quotation:
Once you have narrowed down your list to only a few manufacturers, you should get a Request for Quotation from each manufacturer. A Request for Quotation is basically a bid for your manufacturing business, but it is more than just a price per unit. However, before you ask for a RFQ, you must get a nondisclosure agreement in place. Your nondisclosure agreement must be valid in China, which means you will likely need to hire a local attorney to draft the agreement. It is vitally important to protect your IP by having your nondisclosure agreement signed before you send the manufacturer any product prototypes or any specific product details. Your quotation should include:
Prices for production: Obviously the price is an important part of your RFQ. Find out how prices change depending on your order volume. You should also ask for a breakdown of the per unit cost that includes the manufacture of the product, shipping costs, tariffs, and anything else the manufacturer includes in the price.
Minimum order quantity (MOQ): Every manufacturer has a minimum order quantity requirement. You need to know this requirement up front, especially if this is a sticking point for you. In general, the more units you order, the less each unit will cost.
Prices for samples: Before you commit to any manufacturer, you should have a sample of your product made to inspect its quality. Prices for samples vary widely, from free to a discount to the normal manufacturing price. The price for your sample(s) should be included in your RFQ.
Time to manufacture: The time it will take to get your order, including manufacture time (an entire order) and shipping time, should be set out in your RFQ.
Payment terms: All payment terms, including how and when the manufacturer expects to be paid should be included in your RFQ. You can learn more about Chinese payments in Globig’s article on 7 Things You Should Know About Making Payments Into and Out of Mainland China.
Ask for a sample:
You should get a RFQ from all of the manufacturers on your short list. Once you have reviewed the RFQs and decided to move forward with a particular manufacturer (or a couple), ask for a sample. This should be done before you sign a manufacturing contract and make the longer-term commitment. Keep in mind, there may be slight disparities between your sample and the prototype, which is to be expected at first. It may take some back-and-forth and several rounds of samples to get your product right. This is an important part of the process of creating a working relationship with your manufacturer. Finally, ff you hire a local agent to act as a quality inspector, you should share a sample with your inspector so he can ensure future production is of the same quality.
Consider an in-person visit to the factory:
Most companies will visit a factory in-person, or send their trusted local agent to inspect the factory. If your product is not complex and you find a trusted manufacturer, you may not need to visit the factory in-person. However, if poor quality is a substantial risk to your company, you should visit the factory in-person. Furthermore, if you are concerned about the manufacturer’s legitimacy, you can tell the manufacturer that you will conduct an in-person visit, which will scare off fraudulent manufacturers, while legitimate manufacturers will welcome your visit.
Working with the wrong manufacturer will cost you time and money, and could risk your business reputation. That is why it is vitally important to take the time to find a reputable manufacturer. Remember what to look for when you are searching for and vetting a manufacturer, make sure your nondisclosure agreement is in place before you hand over any IP to your manufacturer, and get a thorough RFQ and sample from the manufacturer.
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