However, not only are China products sought after by markets outside the country, which was the sole case a decade ago, but the middle class is increasing dramatically within the country which opens doors for China products to be sold inside the country as well.

If you are a small business that is still hesitant about moving operations to China, here are some tips and pitfalls for you to consider.

The Language and Culture Gap

One of the highest hurdles for western countries to overcome when doing business with the Chinese is the language barrier. Only a small percentage of Chinese know English and many of them only speak broken English so communication over the simplest issues can become a time-consuming nightmare.

On top of the language issue, you have major cultural differences as well. The Chinese by and large have a totally different idea of how to manage and operate business than their western counterparts which adds another thorn in the side of small businesses seeking to source out manufacturing of China products.

Small businesses have several options to use in overcoming these hurdles. You can either send a representative to your China location to oversee operations or you can hire a representative from a company within the country that specializes in operations management. Another good solution is to hire a Chinese representative, move them to your company in your country and train them on how you want things run before returning them to your Chinese branch.

Become a Wholly Foreign-owned Enterprise

Selling China products within the country is best accomplished by registering your operation as a wholly foreign-owned enterprise, or WFOE, which allows you to sell via Chinese distributors or license your products to another Chinese company to sell. The rate of small businesses that become WFOEs compared to those who utilize rep offices to find buyers is around 100 to 1 which shows the advantage of going this route.

However, becoming a WFOE isn’t a walk in the park. Legal fees upwards of $30,000-45,000 are common to set up the company, establish trademarks, and ensure proper manuals and employee contracts are in place. The Chinese government also requires a minimum capital investment starting at $15,000 and running into the millions of dollars for certain companies depending on their business type and location. This whole process can easily be out of reach for many small businesses as well as take six months or more to complete.

If in Doubt, Get Help

Other pitfalls besides language and cultural barriers and governmental red tape for small businesses exist for small businesses wishing to set up Chinese shops. For example, producing knockoffs is a common practice where Chinese partners go behind your back to sell your designs to dubious manufactures that, in turn, create similar products that are of less quality and a cheaper price.

If you have never done business with the Chinese then it is prudent to get help from someone like China Direct. Our years of experience working within China and with Chinese contacts means we can get you up and running with a Chinese partner to more quickly and efficiently begin manufacturing and selling China products both inside and outside the country.

However, not all Chinese partners are good to work with as some place quantity over quality, some are devious in their dealings, and others are simply too difficult to work with. Due to the number of hidden risks involved, it is prudent to follow specific guidelines when seeking China sourcing partners.

Here are some tips that will assist you with significantly reducing such risks by screening and choosing qualified companies to add to your shortlist.

Locating Good Suppliers

Following are some tips for finding good China sourcing suppliers.

Online Directories – Beware of partnering up with Chinese suppliers based solely on picks from online directories. Most of these websites do not effectively screen the companies before accepting them and suppliers usually have to pay a fee to be listed which doesn’t give the websites much incentive for ensuring their authenticity.

Background Checks – If you do find companies online, or from other sources, that you are interested in, ensure that you run background checks on them. You can obtain a “Business Credit Report” from Globis that will help to reveal the integrity of a company or if they are a complete fraud.

Request References – If a China sourcing company is legitimate then they will not hesitate to provide several customer references at your request. Once received, ensure that you check them out and find out the details of their experiences with Chinese partners. Companies that hesitate or do not provide references should be avoided.

Request Samples – Always request samples of products from any China sourcing companies you are interested in. The quality of the samples will reveal a great deal about their quality control measures. However, don’t rely solely on samples as most companies will send their very best, but still could supply you with shoddy products.

Personally Visit Factories – It is recommended to do more than make Chinese business contacts over the phone or internet. If at all possible, you should personally visit the factory, or send a representative to visit. If this isn’t possible, there are companies located in China that specialize in providing this service for a nominal fee. On your visit, you should tour the factory, inspect various products for quality, take note of working conditions, etc as well as ask any questions you might have.

Monitor Partners – Don’t make the mistake of taking a Chinese partner relationship for granted. The companies you partner with should be closely monitored, especially small factories which often do not have effective managing systems in place. Every shipment of goods should be inspected for quality as many suppliers will send quality products the first several shipments and then begin to send unsatisfactory products. Nip any problems in the bud as soon as possible.

Refuse Subcontracting – Subcontracting should be avoided at all costs. Many China sourcing factories will subcontract orders to raise their profits, but have no control of the quality so it usually suffers greatly. A clause stating the prohibition of subcontracting should be included in your contract.

Employ Professionals – In order to glean the best experience, it is recommended to employ the services of professionals who specialize in assisting with China sourcing. China Direct is a leading supplier of such services. We do all the footwork and ensure that Chinese suppliers are legitimate, responsible, and provide quality products.

Some companies doing business in China don’t believe that there is a need for contracts with their counterparts. Some will say that the Chinese won’t follow the contract terms anyway, while others insist it would be futile to try and enforce them in Chinese courts.

However, there are some very good reasons to draw up contracts with those you are doing business in China and here are some of the top ones.

Clarity

Doing business in China can be a difficult task for various reasons. First of all, there is a language barrier that is a constant struggle. Also, the Chinese see business differently than most western countries so problems can arise with misunderstandings in management, supply, manufacturing and other areas if strict guidelines aren’t applied. Chinese partners have a habit of wagging their heads “yes” while not delivering on what was discussed.

A contract provides clarity on what it is exactly that you want accomplished. It is especially beneficial to have penalty clauses listed should various goals not be met. The possibility of losing money over irresponsible decisions makes for good motivation to do things right.

Add such issues in your contract as shipment dates, quality expectations, and other important items that want fulfilled. Don’t rely on assumptions when doing business in China or you could run into multiple problems.

Guidelines

A contract also provides very straightforward guidelines as to what is expected. This leaves little doubt as to what must be accomplished in order to comply. The contract should be written in Chinese to ensure there is complete understanding on their part.

Strict provisions set up in contracts provided to the partners that you’re doing business in China with also gives you clout when the company is pressured to produce large quantities from numerous other partners. If they have a contract from your company that explains the consequences of not providing shipments on time, for example, they will work harder to fulfill your order first and push to the back of the pack the companies without contracts.

Enforcement

A contract also provides the power of enforcement. Although there is a common belief that contracts for doing business in China cannot be enforced in the country, the truth is that China is ranked 16^th out of 183 countries for successfully enforcing them. That is a very good track record of enforcement.

Besides, businessmen in China are prone to comply with contracts rather than face the possibility of being sued and having the courts rule against them. The Chinese do not like the thought of dealing with the government. This alone gives you more control of the items outlined in your contract.

Conclusion

The bottom line is that it is well worth the effort to draw up a contract (in Chinese) between your company and those with whom you are doing business in China. The amount of preparation, negotiation and even enforcement of contracts will save you a great deal of time, money and headaches that are more apt to surface without them.

A couple of areas which are being looked at for slimming down is increasing the quality of products and reducing lead times. As a matter of fact, many of the streamlining ideas that are now taking hold in the China manufacturing sector have come from approaches utilized by other countries who are experienced in lean manufacturing processes and are bringing them with them to the country. One of the forerunners to such slimming operations is Toyota Motors which utilized such methods for not only remaining competitive, but also for excelling in the industry over a generation ago.

Tools that are used for the leaning process in China manufacturing operations first identify ineffective processes and waste and then eliminate them. Such lean tools also reveal areas of instability and variability which are then dealt with. All of these areas have plagued the China manufacturing sector and, by identifying and eliminating or streamlining these problems, greater productivity is created at lower cost.

Before the surge of foreign investors set up shop in the country, managers of China manufacturing operations didn’t consider such streamlining because of the relatively low labor costs. However, with that key factor changing, they are now beginning to see the competitive advantages of streamlining other operational areas with the help of foreign leaders who have been applying such procedures for quite some time.

There are still some obstacles to be overcome in the streamlining of the China manufacturing sector, however. Regardless of the efforts of manufactures to make operations more efficient, supply chains, for example, can slow efforts down because Chinese suppliers are more unreliable and unstable than in other countries which can affect the outcome of certain areas which are being fine-tuned.

Another hurdle lies in the area of Chinese workers. The Chinese are not as adept at problem solving as other high producing countries such as the United States or Japan. Therefore, their sluggish ability to identify problems and then effectively correct them handicaps the streamlining efforts of many companies.

Recent reports show that manufacturing in the country has come in at its highest over the past two-year period which shows that the streamlining process is working. As more of the country’s other problems are solved and fine-tuned, manufacturing in this booming country will continue to offer investors a shimmering promise of growth and expansion, not only throughout other parts of the world, but also in the rapidly growing Asian markets.

If you require help setting up a China manufacturing operation and getting it started off the right foot, or need assistance with strengthening your Chinese company operations making them more efficient, contact China Direct.

Therefore, we are providing five steps that will help you to ensure that you locate good manufacturers to do business with and receive good product when you buy from China.

Step #1 – Research Sources

When you locate potential Chinese trading partners, don’t assume that they are legit or provide acceptable products off the bat. Request references and follow through with checking them out. Also, don’t rely on emails, but attempt to set up phone interviews to acquire reference information. If your supplier can’t or won’t supply you with at least a couple of references, or you can’t get through to any references provided, strike that supplier off of your list.

Step #2 – Get Documentation

Once you verify the supplier through references, you should then request quality control, lab testing, product safety, and other relevant documentation. Look any documentation over when provided to ensure the products you buy from China are legal and acceptable to sell in your markets. If they refuse to provide such documentation or act like they don’t know what you are talking about, scrub that supplier. Plenty of foreign countries are doing business with the Chinese now and such documentation has become standard.

Step #3 – Carefully Check Quality

Along with product documentation, you should also request samples of any products you’re interested in. Once received, carefully check over all products to ensure quality. Note such defects as cheap materials, flimsy craftsmanship, malfunctioning parts, etc. If samples don’t pass muster, move onto the next supplier and don’t accept excuses. A good business will send out good samples so if the samples are poor quality, you can bet the rest of the products you buy from China will be worse.

Even if you receive good samples, you should continue to check samples from every shipment you buy from China to ensure that the quality remains at your level of expectation. Another characteristic of the Chinese is to provide good quality products for the first several shipments and then to gradually decrease it.

Step #4 – Visit Prospective Suppliers

It is advisable for you or a trusted third party to travel to China and personally visit prospective suppliers. If you can’t afford to go this route or lack manpower, there are firms located within the country that specifically provide this service for a couple of hundred dollars. A great deal more can be determined by actually visiting the location and talking with the ones in charge. Having a trusted person to do this footwork could save you a heap of trouble and money down the road.

Step #5 – If It Doesn’t Feel Right, Don’t Proceed

If you have any doubts about any of these steps, or throughout any of the supplier selection process, hold the presses. If doubts can be solved with more information than by all means acquire it, check it out, and make sure you are satisfied. However, if your doubts persist and your gut tells you something isn’t right then pull the plug on the deal and look elsewhere. There are plenty of good companies that will supply quality products that you can buy from China without taking the risk of dealing with a shady one.

If you require assistance with obtaining qualified suppliers in your search to buy from China, contact a representative at China Direct.

Several of these new additions are expected to be in China following the very successful opening of the flagship Wangfujing Apple Store in Beijing in October of 2012 which is the largest in Asia. The Wangfujing store is located in a high traffic area that caters to both local and foreign shoppers and which joins two other Beijing Apple stores located in Sanlitun and near Tiananmen Square in Xidan.

This announcement of new store growth reveals that Apple is increasing in sales and expects to capture even more of the Asian and, particularly, Chinese markets. The release of the new iPhone5 on January 11 of this year saw record Asian sales over that weekend as Chinese snatched up more than two million of the iPhones in a 3-day period.

Apple announced that 2012 sales saw a 33 percent increase ($4.7 billion) over the previous year. Much of this profit is earmarked for this move to increase their exposure in foreign markets. The company wants to boost its international brick-and-mortar store presence to numbers more even with its U.S. stores. Currently, they have 250 U.S. stores and 140 international stores in operation.

Currently, Apple is in the process of building another store in Shenzhen where several of its China manufacturing partners are already located. Overall manufacturing numbers have been climbing in this lucrative country prompting more companies to take advantage of the relaxing regulations, well organized supply chain, abundant resources, cheap workforce, and growing middle class that has a hunger for China products.

It’s not only large corporations making a move to Chinese destinations, but small and medium-sized enterprises (SMEs) are also rushing to set up shop in cities across the country in order to meet the demand of those looking to buy from China. This is in part due to the rising quality of China products that were once seen as undesirable, but are now becoming more in demand. Better quality is occurring mainly because foreign investment in the country continues to increase and bring with the companies setting up shop here better management with higher quality standards, something which the Chinese lack preferring to produce quantity instead.

For those looking to follow the lead of Apple and other big corporations and establish a greater influence in the Chinese and Asian markets, contact China Direct to assist you with connecting with reliable China sourcing candidates.

However, the country is continuously shifting in a variety of areas that make doing business in China both advantageous and challenging. Although the central government is making it easier for companies to establish branches and population shifts from rural to urban living are adding to the workforce, other factors such as labor shortages, wage increases, and increasingly high turnover must all be considered.

It takes a keen eye and better preparatory management planning to avoid experiencing additional costs that can eat away profits which might have been gained by relocating your company to China. Following are some of the advantages and challenges manufacturers might consider that may help with making decisions for a China manufacturing move.

Advantages

There are numerous advantages for considering a business move to this part of the world. Large corporations with extensive capital can absorb certain expenses associated with such a move, but it is essential for small to medium-sized businesses to more closely weigh the advantages against the disadvantages.

Doing business in China offers advantages like increasing international competitiveness due to various criteria. First of all, wages and operating costs are still considerably lower than in other countries. Savings of between 30 to 80 percent can be realized depending on the amount of labor required to manufacture products.

There is also a growing list of incentives offered by Chinese agencies for utilizing China sourcing. Add these points to a domestic market that is booming, the eagerness of Chinese workers, and having ready access to improving logistics and internal personal and technological research and development and you have very good reasons to manufacture China products here.

Challenges

Even though this huge country offers some very attractive advantages, it also presents some challenges that have existed all along or are popping up as things progress.

Language is a constant challenge to proper understanding and it can take extended periods to successfully get things started. Cultural differences present another standing problem due to some very different ways of doing and seeing business approaches. A good example lies in product quality which is often viewed in this part of the world as being something that can be sacrificed for higher quantity. This issue can lead to brand risk as customers who buy from China and receive poor quality products may go elsewhere. It is advisable to have a quality control unit on-site.

On the one hand, a Chinese location provides a hub in close proximity to other Asian markets, but it also presents challenges in areas such as long supply chains and distance from other lucrative markets. Distance from the home office also presents a challenge with sufficient lead times for relocating key personnel.

If you require assistance with China sourcing and can benefit from tips, advice and information stemming from years of experience in the Chinese markets, contact China-Direct today.

The NBS report reveals that the urban population rose to 51.3 percent, or 690 million people, in 2011 from 17.9 percent, or 170 million people, in 1978. Of course, the trend was reversed in rural areas which saw a drop from 1978 numbers of 82.1 percent to 2011 figures of 48.7 percent. This trend of large numbers of the Chinese population moving to urban from rural areas is expected to continue.

Benefits of Urbanization

Since businesses require workers as well as the supply chain and other necessities that big cities provide, continued urbanization is opening a slew of benefits for them. First of all, consumer demand is increasing as all those masses require China products as well as new and improved public services, housing, and infrastructure. As long as the central government handles such requirements correctly, there is a great deal of potential for the country’s economic growth to be bolstered by both internal and external investments.

Urbanization is also expected to increase market demand. There is a 3.3 to 1 per capita ratio between urban consumption compared to rural consumption. Since wages are higher in urban areas, the amounts of expendable incomes increase with such moves. The middle class is booming in growth within cities due to better pay in China manufacturing and other sectors allowing for more products and services to be utilized.

Don’t Overlook Rural Benefits

Although rural populations are dwindling due to the shift towards urban living, you can’t ignore the opportunities that this process is opening up in outlying areas. For one, family members who have moved to cities and are making better wages are sending money home to their rural relatives. This means expendable money is also increasing in these far out locations that also require products and services.

With the NBS report showing a yearly average increase of 21 million of those relocating to urban areas from rural areas between 2002 and 2011 and an estimated 20 million expected to continue the trend each year over the next 10 years, huge demands for industrial and agricultural goods will be created. This trend in urbanization is consistently opening up huge opportunities in a variety of sectors.

Now Is the Time

The urbanization of Chinese cities is providing huge opportunities to companies wanting to take advantage of China sourcing. Last year, China manufacturing showed its strongest increase in years and the atmosphere remains positive for those seeking to buy from China.

This is an ideal time to either move your company to China or open a Chinese branch in order to take advantage of this explosion in urban development. Regardless of which sector you specialize in, contact China Direct who can help put your plans in motion today.

The short term projection of the survey is that the country will continue to be the big player, at least over the next five years. However, there are concerns that both an aging population and rising labor costs could eventually affect China’s competitiveness. For now, the country is holding its own because labor costs remain relatively low and their corporate tax rates are attractive. Their advanced supply chains and hubs also make them desirable for doing business in China.

The Problems

An aging Chinese population is one of the main concerns for the country to remain competitive in the years to come. In 2012, the working age population shrunk by 3.5 million, which is quite significant and its only seen as getting progressively worse.

A direct result of the diminishing pool of labor is escalating labor costs. With fewer laborers available to fill positions, both national companies and those involved in China sourcing are finding they have to pay higher wages to those wanting to work. Many companies in the eastern provinces are already experiencing labor shortages as well as an increased rate of job turnover due to better wages elsewhere.

The survey also revealed that CEOs ranked Vietnam 10^th and Indonesia 11^th as Chinese competitors, but the advantages of manufacturing China products still far outweighed producing them in those countries.

Foreign Direct Investment

There is also a concern due to the falling Chinese foreign direct investment which saw its first decrease in 2012 since just after the financial crisis that engulfed global markets back in 2009. The manufacturing sector took a 6.2 percent hit last year as companies began looking to invest in outside markets as hedges to any future Chinese investments.

CEOs in Japan, for example, said they were taking an investment approach they deem as “China plus one”. This involves a strategy of utilizing China sourcing for one project while investing in another facility in some other Asian country.

Optimism Based On Advantage

Regardless of the several declining trends in the Chinese nation, companies remain optimistic to both produce in and buy from China. Medium and high-end manufacturing are seen as still quite competitive although the country is slipping in the low-end arena.

Also, China still maintains a workforce that is more highly skilled and possesses a better work ethic than its neighboring competitors. There is also the critical point of its dominant supply network that is essential for competitive manufacturing as well as the country’s huge base of natural resources available to manufacturers.

This particular center, which is expected to be constructed over the next three years, will be the second such base for Microsoft’s Asia Pacific operation which is a merger of its Asia Pacific and Greater China operations. The initial headquarters was established in Shanghai in August of 2007 and meets a variety of technical support and service needs to regional customers and clients who rely on China products. The company also has a strong presence in Australia, Taiwan, South Korea, and Singapore.

Due to the growing Asian market, Microsoft has seen the need to establish another support center in China to meet the rising demand for its products and services. Over the past several years, this behemoth of a country has risen to become the largest market for personal computers, mobile phones and other mobile devices. Due to this increasing buy from China trend, a large number of China manufacturing partners, IT professionals, enterprises, and technological developers as well as personal product users consistently draw from Microsoft’s knowledge, services and products.

The new center in Wuxi seeks to enhance both services and IT support to Microsoft’s growing number of partners and customers located throughout the region. Certain representatives in the new center will be totally dedicated to providing services in languages other than English. The Wuxi center is also being eyed as the future cloud technology support base of operations for Microsoft.

The Wuxi endeavor will require implementation in and cooperation from a broad range of government controlled sectors. Those sectors expected to be enhanced by the CNY300 million deal include cloud computing applications, intellectual property rights protection, the software industry, and intelligent (smart) construction methods. The large investment demonstrates Microsoft’s continued commitment to doing business in China.

Entrepreneurs and business savvy operations that are looking to expand into the China market should be encourage by Microsoft’s new investment in the country. This is especially true of those who can utilize Microsoft’s tech support, products, and services in order to strengthen operations in the country and region.

Major players are increasingly making moves to establish a presence in the rapidly expanding Chinese markets. Such signs of expansion reveal the warming and increasingly inviting business environment within the both the Chinese government and communities. Efforts by the Chinese government to make doing business in their country more tempting are paving the way for companies to become more involved. This not only pertains to corporate giants like Microsoft, but also to micro, small, and medium-sized businesses who are looking to move or setup operations in China’s growing market.