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Some Avoidable Costly Mistakes Startups Make When Sourcing From China

Some Avoidable Costly Mistakes Startups Make When Sourcing From China

A few weeks ago, I was invited on the 2X eCommerce Podcast by Kunle Campbell. It’s a show for entrepreneurs interested in eCommerce tips, strategies and best practices.

Talking to Kunle was great because he asked the right questions. It allowed me to cover some of the essentials you need to know if you’re running a business with plans to source products from China.

In this podcast, you’ll discover:

  • What I believe is the main mistake startups make when sourcing products
  • What’s changing in China and what’s in store for the future (hint: look outside China)
  • How I feel about the Trump-China tariffs
  • My best tips for how to make the best of your visits to trade shows
  • Why you should register your intellectual property in China

If you’re short on time or can’t listen to the interview, I’ve had it transcribed for you. Scroll down to read our entire conversation.

 

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Interview Transcript

Kunle

[00:22] Yup. We’re live. We’re live. Welcome, welcome. Welcome to the 2 X eCommerce Podcast Show. This is the podcast dedicated to rapid growth in online retail. So if you’re looking to grow metric shortages, you know, conversions, average order value, and ultimately sales you’re in the right show. On today’s episode…Well before I actually get into today’s episode, I just wanted to make a super interesting announcement. It’s around Klayvio Boston which is just around the corner. I believe Klayvio Boston according to my notes here will run on the 25th and 26th of September. And today’s the 4th of September or 5th depending on when you’re listening to this. And basically, it’s in in three weeks’ time. So feel free to check it out. There’ll be more than 600 marketing professionals and eCommerce founders at Klayvio on the 25th and 26th of September. They’re going to be 50 actionable sessions. You don’t want to miss the keynotes. There are going to be online marketing insights. And I’m going to be attending, which is going to be great. I’m going to be podcasting from there. They’re going to be a few podcast sessions I’m going to have with keynote speakers there. So I’ll be heading out to Boston on the 25th and 26th. You don’t want to miss it.

Kunle

[01:43] On today’s episode, back to today’s episode, I’m super, super excited. I have with me David Hoffman. He is an expert in product sourcing from China essentially. So when you’re talking about supply chain, he’s somebody who has a deep understanding and supply chain from China and Asia in general. He’s the man. He is pretty much a CEO. Has been CEO for Global TQM for the last 15 years, which is product sourcing company based out in China. He is based in Hong Kong actually. He’s worked with Target, Kmart, Walmart and a ton of smaller eCommerce entrepreneurs, whether they’re selling via Amazon or in other marketplaces. And also direct to consumer in eCommerce as you know it. So without further ado, I’d like to welcome David to the show. Welcome David!

David

[02:43] Hey Le, thank you! Thanks for having me on the show. I appreciate it.

Kunle

[02:46] Fantastic. I probably haven’t done you sufficient justice with the introduction. Could you just take a minute or less to introduce yourself further?

David

[02:54] Well, I thought it was a good introduction, but yeah, I mean just briefly, I’ve been living out in China for 16 years. We started a business called GlobalTQM.com which is really a done for you services business, which stemmed out of us having, you know, servicing very large retail clients and wholesalers and importers. Some of the brands you mentioned and some other brands you never mentioned like JVC and Aiwa. And because of all our knowledge and experience, what really started happening is me and my partner we’re entrepreneurs by heart anyway so we started up a lot of companies and a lot of businesses. And we’ve got friends and family and they would always come to me and say “Hey David, I’ve got a problem with the factory”, or “I need this” or “I need that”. “Can you help me?”

David

[03:42] I’ve found just through helping friends and family that a couple of calls with our team on the ground and we’ve solved a lot of problems for them. And it just really got me more involved in kind of this division of Global TQM where we try to help first time sellers, startups or entrepreneurs manage their supply chain in China, find the right suppliers, develop the right products and really handle things on the ground because we have a big team here.

Kunle

[04:15] And then you expanded. Okay. So I’m just going to jump right into a technical question. What’s the number one mistake established eCommerce businesses or startup eCommerce business make in China right now, or in Asia, when sourcing for products?

David

[04:40] It’s a really good question. I think it’s a simple thing which is really the attention to detail and the patience that it takes to get products launched. I see so many Eastern and Western miscommunications happening all the time and I find people get impatient and get frustrated with the manufacturers. And it’s such a real cultural and communication difference between East and West that I just find you’ve got to be very detailed, very specific and go through that process of checking, rechecking, sampling and sampling again. A lot of people want to shortcut that and they don’t want to do the hard work and homework. And I’ve explained to some of our big clients and our small clients that the difference between them and a large brand is that a large brand has got a team of people doing all this work all the time and you’re just seeing the end result. If you want to develop that you have to go through that painstaking trial and error and detail. There’s no shortcut to the homework as I call it.

Kunle

[05:51] Yeah, yeah, makes sense. And then there’s also the frustration in terms of time cycles too to get it from factory to your warehouse. And that just piles up the anxiety, I think.

David

[06:08] Absolutely. And I mean, there’s so much detail that goes into it. So by the time you’ve finished finalizing all those details and finish going through all that sampling, you then want to get it manufactured, check that it’s manufactured correctly and then get it delivered. The last thing you want to do is have it delivered and find the problems. You want to catch that at source. And even at source, you know, I mean we do inspections on products and I always tell people you can’t inspect quality into a product. Inspection is a last minute thing. Like it’s a safety net. Really it’s the process before that which has to be thorough and complete in order to make sure you eliminate problems. By the time it’s produced, it’s too late. It’s a rework and it’s not what you want.

Kunle

[06:52] What happens when everything goes tits up and you realize there’s just one bit of detail that’s screwed up the whole roll out of products? Who takes responsibility? How do you fix the problem as quickly as possible? Do you have any stories?

David

[07:15] Kunle, I could tell you so many stories [laughs]. I came to China for one year and I was going to move on, and 16 years later I’m still here because those stories happen every day. You know it’s such a good question. And this is where it comes back to the first question you asked. It’s that attention to detail because who takes responsibility is always the question. You know, everybody says the factory made a mistake when it’s their responsibility. Nine times out of ten when I look into the detail, I find it’s not as cut and dry and things weren’t as clear as they appear to be in somebody’s mind. Whether it was being specific on a specification. You know, sometimes if you don’t say it or you do say it you’ve still got to be very careful.

David

[08:04] Because not saying something doesn’t mean somebody automatically is going to do it. Or that you can assume it’s going to happen. It just doesn’t work like that. And that’s why I say those details are critical. Ultimately, and this is like you say, who takes responsibility? The harsh reality is everyone says well the factory manufactures so they should be responsible. But the bottom line is you take responsibility because you’re the one that suffers the returns. You’re the one that suffers the problems with the customer. At the end of the day you lose your reputation. So I feel that the people that I’ve met and worked with that are really successful in the space are the ones that take all the responsibility. Because they say, well, if there’s a problem it’s my fault. I should’ve checked this in more detail. I should’ve been more specific on this. I should have been a bit more thorough because ultimately, you know, you’ve got to own it.

David

[08:50] If you don’t own it, you’ve always got to pay the price in the end. So rather own it from the beginning and do as much management of it to make sure you get the right results. And work with your partners. You can’t dump the problems on your manufacturing partner and just say, oh, everything’s your fault and ruin the relationship. You need them. You need your manufacturer partners. You can’t kill them. It’s hard to be open minded when you’re emotionally invested in a product. And I get that. It happens to me. I’d go through these emotional roller coasters where I want to pull my hair out. But I’ve always been able to take a step back and say, you know what, I wasn’t quite as specific as I thought I was. Or it was a mistake and I’m going to have to step up and cover the cost or compromise on the cost because there’s a bigger picture at the end of the day.

Kunle

[09:45] So this Global TQM, would you classify it as a trading company or are you a sourcing company?

David

[09:55] It’s a great question. No we’re not exactly either and there’s a very good reason for that because we’re a service provider. We’re a done-for-you service provider. So we really provide resources on the ground in China to help you source products, to help you find the right supplies, to help you manage your orders and communicate, to help you do the inspections. Why are we not a trading company? Because we won’t buy and sell a product. We help you build your relationship directly with your supplier because that’s how we really believe it should be, as in supplier direct to the end buyer is the ultimate formula. So, you know, we find our role is to help people get there quicker and faster and facilitate that process and help them to not repeat some of those mistakes that they’ve made or that we’ve made even in the past and short circuit for that.

David

[10:51] You know, I often say to clients which we’ve had, they say oh, we’re new to this, what do we do? And I go, look, it’s a journey. There’s no black and white. It’s a journey and we’re on it with you. At the beginning we hand hold you a lot. I say if there doesn’t come a time where you don’t need us so much anymore and you’re not traveling to China to do this on your own, we probably haven’t done a good enough job of teaching you as you go. You know, you learn as you go. Our relationship should eventually become transactional where you’re just using us to go check a factory because it’s quicker and faster, or consolidate your samples. And that’s how I see it. It’s a done for you service to accelerate your relationships with your suppliers and your supply chain.

Kunle

[11:33] Okay, and what about like product design? Do you go into that area or are you still more factory validation and product quality checks, quality control?

David

[11:49] Yes. So, we’re more, as you mentioned on that side. We do have a group of designers we work with. Depending on the client we will look at certain projects and say, okay, we’ll use our resource on this as a design project and develop it. We’re quite selective on those because as you can imagine when you get into R&D and the design there’s a lot of investment of time and money and we’ve got to believe in it because we know it’s going to take a lot from us. But we do, we love those opportunities when they’re the right ones.

Kunle

[12:26] At the shared office I work out of sometimes there’s a neighbor of mine who just specializes in product design with China. They’re doing quite well and that’s all they do.

Kunle

[12:42] Okay. So let’s talk about China in itself. You know China’s matured. I was reading Shoe Dog by Phil Knight, you know, Nike? And back in the 70s it was the new frontier. We’re talking 40 or 50 odd years ago. It was like super exciting for them, as you know Nike’s stock actually accelerated as well as Nike’s scale. Obviously it’s 40 or 50 years on now. What is changing in China? What other countries should we factor in from a sourcing standpoint? And what do you see the landscape like? How do you navigate China?

David

[13:32] Yeah, it’s a really good question and there’s so many dimensions to it. I mean, I’ve seen the change in China in so many different ways. I think purely from a manufacturing perspective it’s very clear. A lot of manufacturing is moving out of China to Vietnam, Cambodia etc. I even know a really large clothing brand that’s now manufacturing in Ethiopia at a much lower cost. And you know, those guys were actually telling me the story of how much management they’ve got there to manage the quality and train the people. He’s questioning whether it’s more cost effective, but obviously in the long run it is. I don’t think China’s looking to be a low cost manufacturing country anymore. I think China’s moving more into the AI side of the world.

David

[14:25] I mean, we’re dealing with factories now that are going into chip design or into software design. They’re actually mirroring a lot of the US in all those aspects and starting to get their own proprietary technologies and the big manufacturers in China are servicing the Chinese domestic market, which is a huge market for them. So I don’t believe China is trying to compete at low cost manufacturing anymore. I think they’re progressing. I read a lot about China and their development in AI which just fascinates me. Alibaba would be one of the major players, not just as a platform, but even on government projects. What Alibaba do in terms of AI and government projects is mind blowing.

Kunle
[15:12] Did you see the trending YouTube video about the artificial intelligence conference? I think it was held like a week ago. On one hand it’s Elon Musk and on the other hand it was Jack Ma. And Elon Musk pretty much took Jack Ma down. But I think what Jack Ma’s companies do in Alibaba with AI is light years ahead of what Tesla or even Space X is doing. It’s very, very interesting. He was very conceptual. Have you seen it?

David

[15:51] Yeah, I saw it. It was actually brilliant. I mean, I love just watching Elon Musk. He’s just such a character. I mean he sees AI as the biggest threat to humans and Jack Ma is kind of playing it down. And I promise you, Alibaba is the biggest AI company in the world. It’s frightening. I mean, they’ve developed credit systems based on your behavior. They’ve got air traffic control systems that they’ve tested with the government. They’ve got traffic control systems all through AI. You can’t move in China without the AI.

Kunle

[16:24] You can’t or you’re removed.

David

[16:26] Yeah. Have you heard of the FlyZoo hotel? Alibaba have got an automated hotel where you check in through facial recognition and robots serve your room service. The only humans in the hotel are people that are there to greet you and say hello just so you don’t feel strange that there’s no people around.. This is what they’re testing. And then Jack Ma was kind of trying to say “No, you know humans make AI…”

Kunle

[16:49] Yeah he was playing it down totally deceptive. And then you know if you read the comments everybody fell for it and it was like, seriously?

David

[16:59] I mean if you watch Elon Musk’s facial expressions it was actually quite funny. Because he kind of looks up like “What are you talking about?”

Kunle

[17:07] [laughs] He knows what they’re doing. It was very, very fascinating. So in China, I got a notification from one of these newsletters I’m subscribed to and they’re saying that there’s new tariffs on Chinese goods for U S businesses. So basically from December the 15th there’s going to be a 15% tariff for over 40% of consumer products imported from China, which are going to be footwear, electronics, machinery, plastic products etc. And there’s going to be inflation in America and the consumer is going to pay. How do we balance this out? And how do you see this playing out in the next one year?

David

[18:05] You know they say out of one disaster is born more opportunities right? And I almost think this situation is forcing people to look outside of China. It’s forcing even the Chinese manufacturers, who are opening production plants outside of China so that they still keep their clients. And they’re just expanding. So I think what’s happening is it’s creating an alternative and it’s taking that threat away. So although there’s a short term pain I almost feel like there might be a long-term gain out of this, without a reliance on China and without a threat from the USA and they’re tariffs. You know a lot of factories I go to now I will say, “Do you want me to produce this in my China plant, my Vietnam plant or my Cambodia plant?” Because you know, antidumping duties, we can accommodate you either way. So in a way people always find a way around it and I think that’s what’s happening. It’s spreading the risk, which is good ultimately for the consumer I think. Because these trade wars just don’t benefit anyone.

Kunle

[19:10] Absolutely agree with you. Okay. So one final point I wanted to cover before let you go is trade shows. You know a lot of people get into trade shows. Initially they’re like a kid in a candy store and then all of a sudden its analysis paralysis and they don’t know what to do in trade shows. What is your take on the right approach to trade shows? Give us a small guide, a David Hoffman guide to trade shows.

David

[19:40] It’s a good question. You’ve got a lot of good questions, what can I say Kunle. Firstly I think focus at a trade show is critical because it is. I mean, even me, I’m still like a kid in a candy store when I go to trade shows. But you know, the beauty of seeing things and seeing a variety of things is creativity comes from the strangest places. And I think you can get so many great ideas. And sometimes they’re half-baked ideas that are the right idea but not the right execution. Or maybe it just needs a little bit more to complete the idea. So you can find really wonderful ideas but I think the reality is it’s all in the execution and follow up afterwards. You know, when I would go to a trade show I’ve got a list. And I make a list of great ideas I want to do in the next one year and I’ve got a list of stuff I need the next two months.

David

[20:30] Right? And I just keep going back to my two months list and I allow my mind to wonder free with all these great ideas. But I write them down, I collect the cards, I kind of plant the seeds and let the idea simmer. And I actually genuinely look at those ideas quite regularly and just by default some of them fall off the bandwagon. I go, ah, not interesting anymore. Or still interesting because you start finding actually that the concept might be growing more and more and you go, “Okay, I think I want to look deeper into it”. And then you’ve got those name cards, you’ve got the factories to go see. I just think if you organize yourself into those compartments and accept them for what they are you’ve got a recipe for success.

David

[21:34] You’ve got your potential opportunities. You keep revisiting them until, you know, some things get what I call a natural growth, right? So, the more you revisit some you get a natural growth and they keep growing and keep growing and they get more of your attention.

Kunle

[21:57] Exactly. It’s kind of like reference cards really. Once they’re in mind, at some point you will get back to them and those ideas. There was a time I visited a show in London, I think it was an eCommerce show, and I picked up some contact details of a packaging company. They do all sorts of packaging and when the need arose I did get in touch with them and give their details to an eCommerce store. So it makes massive sense. Would you go to the source, i.e. straight to China, Guangzhou, Shenzhen or even Hong Kong for the shows? Or would you prefer the shows to come to you? I know there’s one in Germany I might be attending in January or February. I think that there are a ton that come through Excel center in London. Where’s the best shows to…?

David
[23:00] Yeah, I think depending on the type of business you’re in the closer to source the better. I find that when the shows are coming to you those manufacturers are a lot more established in terms of branding and marketing and very often they have their own sales channels and they’re looking for distributors, or more sales channels or outlets. They’re quite sophisticated. I’m generally looking for the less sophisticated guys that don’t have these sales channels but are good manufacturers that can make our products and our designs. Otherwise, not a lot of guys need you. You get ideas from everywhere so it doesn’t hurt. Generally, the closer to source the better, but the harder the work.

Kunle

[23:53] Okay, that makes sense. I thought that was going to be my final question, but I have one more question which is the big elephant in the room. It’s about intellectual property protection. What quick tips or rules do you have? Because, you know, eventually goods would be fabricated (copied)…

David
[24:15] Right. I’m glad you asked that question. I’m going to give you my single biggest tip, and I do webinars on this. I preach it all the time to everybody and I really recommend everybody does it in the end. If people want to contact us to do it we can help get it done as well. And that is register your trademark in China. That simple.

Kunle
[24:41] Is it as simple as it sounds?

David

[24:42] Yes it is. And let me explain why. People don’t understand because people think “Okay, I’ve got it registered in the US” or “I’ve got it registered in Europe”, or Australia or wherever they are. And that’s fine and there is a one-year period where you can register in other countries but, and I’m talking from firsthand experience since I’ve helped so many people do this, anybody can register your brand in China. And the first one to register it owns the brand.

David

[25:11] I mean your brand could be registered right now in China and you wouldn’t know until you try to register it and then you see that you can’t because somebody else has done it. And it’s not expensive to do. It’s a couple of hundred dollars. It’s time, some processing, and it’s really not a big deal. But I’ve had cases where the manufacturers have gone and registered our clients’ trademarks. I’ve had manufacturers register my trademarks. Which basically means they start selling the same products online in China. So especially if you’re in the eCommerce space, you might go to Amazon China or JD.com or the big Chinese selling platforms and see your brand and sometimes your product selling online. It’s happened to countless people and it’s a nightmare to deal with because you don’t have your trademark. If you register your trademark in China you can give them one certificate – a Chinese trademark certificate – and you can get it delisted. That alone, for me, makes it worth it.

Kunle
[26:06] Does the trademark cover form? You know, the properties of your products. Or is it based on your brand? Because anybody can copy Nike and then change the tick upside down and…

David

[26:25] Yeah, it’s a really good question. So it doesn’t cover from a trademark that is like your brand in the class that you register it. But why that’s important is because ultimately everybody’s looking for product differentiation. Your biggest differentiator is your brand. You know, people buy Nike because they’re Nike and they buy Adidas because it’s Adidas. Because your brand is your reputation, your customer service, your quality and everything around that. So, you know, first and foremost I say to people, protect your brand everywhere because it’s like your personal name, right? Would you want your name to be tarnished anywhere? You’d say no. And your brand is the same thing. So that’s the first thing you want to protect.

David

[27:10] Even if people copy the product 100%, if it doesn’t say Nike it’s not a Nike, right? Because Nike have got a reputation for quality and all those things. So that’s the easiest, lowest level fruit. Now, yes, there’s a whole separate discussion on design patents and other patents. You know, invention patents or utility patents and things like that where you can say, I want to protect the design. Of course you can do that. If you’ve got a very special product, you should do it. It’s costly. We do it. After countless legal battles I’ve had, and I’m still dealing with, the single biggest thing that has always mattered at the end of the day is your brand and your trademark. Protect that first and foremost. Products change. Life cycles change. You know, Apple changed. Their iPhone changed from the 5S to the 6, to the 7. The design is going to come and go. But your brand name lives forever.

David

[28:09] And that’s why I say that the best advice right now to any eCommerce person is register your trademark in China. Don’t rely on international. It’s a couple of hundred dollars, get it done. And the minute you register it, by the way, you’re protected. It takes about one, one and a half years for the application to go through, but it’s a process. Our people help with all of that stuff, but the key thing is that the first to register gets the priority on the brand. So even though it’s not registered yet because you’ve put the application in, nobody can do it afterwards. I’ve got guys now who are a very successful lighting brand. They’ve done exceptionally well and they want to launch internationally now. The first thing I said to them was “Have you registered the brand in China?” They said “No.” I said “I told you to do it. Please get it done.” Because your factory can see you reordering and reordering and reordering. They’re going to go and register it especially when it’s really nice brand; I can’t mention what it is. Just protect it. It’s a couple of hundred dollars. It’s a no brainer for any business.

Kunle

[29:04] I agree. I agree. It’s first thing you do to secure the market and to secure yourself essentially.

David

[29:11] Yeah register your trademark in China. It’s one of those things that you’ll look back on in five years and go “Wow, that was the cheapest, best advice I ever had.”

Kunle

[29:19] Brilliant stuff. Brilliant stuff. Any other thing you want to say? Any parting words or, do you think we’ve covered everything sufficiently enough?

David

[29:31] No I think we’ve covered a lot. I’m always free for conversations. You know, on our website people can just schedule a call and chat to me and talk to me. I love talking to people about their issues, seeing how we can help or just even giving advice. The more people we meet and network with the happier we are.

Kunle

[29:49] So, you’re based in Hong Kong and your team is based in Shenzen?

David

[29:53] Yeah, I travel up and down. It’s about a one hour travel on the train through the border. So yeah, I do that commute three, four times a week.

Kunle

[30:03] Okay. So for people who want to get through to you, I know your website address and I’m going to share it in the show notes. I’m going to share it on Facebook group. It’s…

David

[30:14] It’s GlobalTQM.com and they can just click ‘book call’ and really I’ll take 90% of those calls, or my team do and we can discuss anything.

Kunle

[30:27] Amazing. And you guys work with like Amazon sellers, SMEs and enterprise?

avid

[30:33] A lot of Amazon sellers, a lot of Amazon startups, a lot of SMEs and massive brands we work with. You know, the key thing for us is that it’s scalable to whatever level you’re at. And startups are our favorite because we’re just passionate about that. That’s kind of our home ground.

Kunle

[30:56] David, thank you so much for your time and sharing all that stuff. Good stuff.

David
[31:01] No, thank you! I appreciate it.

He Was Forced To Go To China To Save His Business But Now He’s Launching His Own Brand

He Was Forced To Go To China To Save His Business But Now He’s Launching His Own Brand

Click here to subscribe to the show on your favorite podcast app.

I recently had the pleasure of interviewing one of our clients, Robert. His company sells designer lighting in South Africa.

Robert’s company was the sole agent for an international lighting brand. They sold it successfully for over 10 years until the principal suddenly decided to drop them.

This left Robert in a predicament. A large part of his business was now gone and they had to make some changes fast.

After a mutual friend introduced us and we had a long chat about his options, Robert decided to take a trip to China.

Nearly 2 years after that first “expedition” to China, I sat down with Robert to talk about his journey into sourcing from China, what his experience was like, and his plans for the future of his brand.

In this podcast, you’ll discover:

  • The power of building a brand in China
  • The challenges you’ll face sourcing products and customizing them with Chinese manufacturers
  • The recipe for success: what it takes from you that many business owners ignore
  • The reality of the journey vs. your expectations
  • And much more!

If you’re short on time or can’t listen to the interview, I’ve had it transcribed for you. Scroll down to read our entire conversation.

Want To Talk To Us About China Sourcing?

Click Here To Book Your Free Consultation

Interview Transcript

David

[00:49] Robert, you’re in South Africa, you’ve got a lighting business. I know you’ve been in the lighting business for 20 to 30 years. And I really love your story because you’ve been selling – and I’m just giving some background for those who don’t know you – you’ve been selling lighting for 20 to 30 years, mostly European brands. And your story of coming to source from China kind of started from a tragedy. And I really, I’d love for you to share that story with everybody and give them a little background and how you started getting to China products and what happened.

Robert

[01:25] Okay, David. So, basically, we with the South African agents for a brand from Spain. We, in fact, opened up a store and had their name for South Africa and we ran it pretty successfully for close to 10 years. After all the hard work was done, they decided, “thank you very much.” They decided to come into the country. Which really left us hanging there with a very big part of our business now suddenly taken away from us. So, that’s when we decided we need to get off our butts, basically, and look at some other options of getting some new lighting ranges in. And you must understand that for many, many years we’ve represented the top European brands. So our knowledge in European brand lighting was very high. We attend all the overseas shows, Milan, Frankfurt, Meson in Paris, obviously the Hong Kong show.

Robert

[02:29] So we had a very good understanding of what people liked. And then I think it was around about the beginning of December 2017, when we were introduced to you, we had this idea of forming up our own brand. And being absolutely novices in it we needed some guidance and thankfully, Josh introduced us to you and we had a sit-down meeting and that’s how we basically started our venture into China.

David

I remember the meeting well, a few warnings I gave you.

Robert

Needless to say, we were totally green. I mean I’ve been to China before but I’ve never really sourced directly myself. So, as you can imagine, our first trip was a couple of days after meeting you and there we landed in the lighting capital of China. My partners and I, and one of the guys from your company as well came with us, and…Wow! What an eye-opener.

Robert

[03:38] So then we arrive at a place called Guzhen town, which is part of the, just outside Zhongshan. And we drive into this town and I was amazed. I couldn’t believe my eyes. Wherever I looked, every direction, it was just lighting stores. It was like being a little kid in a candy store. I didn’t know where to go first. So now, being greenhorns, we thought, well, this is it. This is how you do business in China. We’d get out of the car and we’re walking up and down and, honestly, I mean just, literally thousands of lighting stores. We didn’t even know, We didn’t even know where to go first. And we started walking and we got an understanding of what we’re looking for and we started to understand pretty quickly the pros and cons of being in China and not really knowing what’s around the corner. Anyway.

Robert

[04:33] I think it was about the second or third day, I don’t know how we found it, I still to this day don’t remember, but suddenly someone said to us, hold on a second, you need to go to these big shopping centers. There’s a place just for lights. That’s where all the big brands are. So, the next morning we rock up to this beautiful 15-story shopping center and we were absolutely blown away. I’ve never seen so many beautiful lighting showrooms in my life. Each one was almost bigger than the next. And now you’ve got these youngsters – well, these South African guys – now we were running amuck boy. We didn’t know where to go. I think after the first two hours I said to the guys, “you know what guys, this is actually a bit too much. Let’s just sit down and let’s just try and focus on what we want and how we are going to get it.”

Robert

[05:37] Because can you imagine? You’re like thrown into the deep end there. Anyway, so yeah, we spent a whole day at the shopping, at this center, going from one store to the other and you learn quickly. You learn which of the guys that, well, first of all, we noticed that you know, one or two of the stores just weren’t our type of lights. So you start, like, bypassing those and going to the guys that you liked. And they, that’s basically how we started, you know, got going on it. And one thing led to the other and yeah, we started making one or two connections over there. We started understanding the process. The biggest thing you’ve got to understand is, straight away, when you’re dealing in China, the first thing – you guys already know – is what are the minimum order quantities. Because you’re starting with a new brand, you can’t afford to bring in a container of each piece.

David

[06:37] Was that a big change for you? Because you, I mean, your business with the brand and stuff, you were used to being able to buy smaller quantities, right? And now you have to kind of move to bigger quantities.

Robert

[06:46] Yeah, correct. I mean the European brands that we bring in, we would bring in per customer’s quote on a job. If a guy wanted one, we would bring in one. We couldn’t afford to keep stock of anything. Yeah. It’s very scary, especially on the European side, how expensive the stuff is, you bring it in and you can sit with a product for, for a year before someone comes to buy it.

David

[07:16] Robert, it’s a year, year-and-a-half down the line and you’ve got a couple of key suppliers, a couple of key factories. I know you’re visiting them all the time, I see you all the time. How did, what did you expect China’s sourcing was going to be like compared to what it actually is? I mean, did you kind of have an expectation and then like a kind of realization? Were they very different?

Robert

[07:43] Well, I think the most important thing is you’ve got to understand that, I think you’d put it so well the other day when we met, you’ve got to do your homework. At the moment we’re, most probably, dealing with about 12 different factories, which in itself is great but it also becomes a bit of a problem. Yeah, now you’ve spread yourself thin. And ideally, the best thing is to try and narrow down the number of factories that you’re working with. And I think that only comes with time and experience. You’ve got to go through all the hassles and everything.

David

[08:21] And I think without working with them you don’t know how to filter them down. So yeah, that’s what I always say. The homework is everything because at the end of it, you kind of got smarter and wiser and there’s just no substitute for that experience.

Robert

[08:34] Correct. And this is it: it’s time on your feet and going and visiting. And it doesn’t mean that you go to a lighting showroom that is beautiful and everything, that that is the correct factory for you. So generally what I like to do, for me, the important thing is to actually go to the factory and see. Because 9 out of 10 times we’re looking for something that’s a little bit different. We’re not looking for run-of-the-mill stuff. So when we go to the factorie, we find, lying on the floor, pieces of glass and steel and everything. And we try and become a little bit more unique by trying to design our own lighting as well.

David

[09:17] Yeah, the changes And differences make a whole new product.

Robert

[09:25] 100 percent. So, you know, we’ll find something we like. We’ll go to the factory. We’ll sit down with the buyers. We tell them we want 4 meters of cable. We don’t like this in black, we want it in brass, or whatever it is. We want the lamp poles to be different. We want, you know, bits and pieces. So we almost try and fine-tune it to our own likes and dislikes. Using our knowledge from European brands.

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David

[09:47] Do you think this whole launch of your own brand and your own range in China has been successful? I mean, how do you view it? Was it a blessing in disguise?

Robert

[09:59] You know, yeah, it was. Definitely, without a doubt, it was a blessing. I wish I would’ve done this 10 years ago. Yeah, lets put it that way. It’s a long process. It’s a very difficult process. I’m not trying to pull the wool over anyone’s eyes. You’ve got to put in hard work. But definitely, I think that we’re forming a brand that is unique. That people love because it’s a little bit different. I mean the brand name is [redacted].

David

[10:29] I was just going to say, I’m going to bleep that out because I don’t want you to repeat the brand name yet. Because I know we’re in the process of trademarking it et cetera, et cetera. So, for everyone listening, I’m going to bleep it out. Let’s keep a low profile for now.
Robert Kalish

[10:46] So yeah, so it’s taking time. People are very excited about it. I think that it’s got legs, definitely. I’m now looking at expanding and looking at the rest of Africa. We’re looking at other ideas, where to bring our brand into. But it’s exciting because, you know, it’s your own. And you, you’re not beholden to anyone else but yourself.

David

[11:10] Correct. And then it’s your hard work that creates it and makes it happen. And I always say to people and, I’d love to hear your view on it, is that there are just certain things you can’t outsource and there are some things you can, but it’s very much a collaborative process to build a brand and a range. I mean, would you not agree with that?

Robert

[11:32] Absolutely. 100 percent. And yeah. I mean, you’ve got to go there and you’ve got to look and you’ve got to feel and you’ve got to see, and you’ve got to make the mistakes. Because please believe me, they will be mistakes made. And the most important thing for me is to make sure that if you choose something before you order it, is to get a sample made up, and then you inspect the sample and you check it out. And 9 out of 10 times there’s something wrong with the sample. And it’s up and down and up and down until you feel that that is good enough for you.

David

[12:06] Robert, what’s the next step for you here? I mean I, and I don’t mind sharing with people that, you know, we’ve even started discussions of looking at expanding it as an international range into other markets because you’ve done such a good job on that product development. And, you know, I think just once you start something, it can expand into anything. What do you see the future as?

Robert Kalish

[12:31] Well, you know, the South African market fits the brand beautifully, and well, is to expand to other countries. That’s definitely my focus now, is to look at that and just to see that, you know, as with anything, starting up a brand and trying to do it yourself is not easy. It takes a lot of effort and money. And the money part of it is a huge aspect of it. Yeah. So, putting all this money into building a brand. It’s trademarks. It’s having them tested by laboratories. It’s all the marketing material. It’s bringing in samples. It’s bringing in containers of lighting that you just hope is going to move. So you’re putting all this money into something all the time, and it’s going to take time, obviously, for it to start, you know?

David

[13:30] And I think what’s interesting as you were saying to me the other day, you know, some of the lines weren’t selling and then they just suddenly started selling and sold out. And it’s just hard to predict what those patterns are going to be, especially with designer products. It’s incredible.

Robert

[13:44] Yeah. In just under 2 years or a year-and-a-half. We’ve managed to put together a catalog of about, well the catalog’s nearly a hundred pages, about 88 or 89 pages, but we’ve got about 30 products in there. Some in different sizes, same range and what have you. And yeah, I mean, you know, the thing is you bring in stock, you sit with it, and it doesn’t move. And it can take 3 or 4 months and then suddenly in a week you sold 50 of it. So it’s very difficult to predict how to go forward. Up until now, there’s been really, none of our ranges have NOT moved. Some quicker than others. But I think that the more we’re out there and the more we wholesale to other lighting companies and get the brand out there, I think is there are legs on everything.

David

[14:49] Yeah. I, I agree. I Robert, thanks for sharing that all. I’m hoping that guys listening to this get some value and some insight out of it because everybody kind of starts their own journey in their own way. What I really love about the whole story is that you were, like, out of a disaster you’re forced to come to China. And I remember the first day we met and we had that whole long conversation about what lays ahead. And, I mean, looking now, like a year-and-a-half, 2 years down the line, it’s been an incredible success story. It’s a great relationship we have, we certainly enjoy it, looking at all the partnerships we are looking at now. So little things become big things, you know, It’s exciting.

Robert

[15:31] Yeah, no, absolutely. And as I say, this is something that’s given me a definitely a spring in my step. I’m enjoying that tremendously. I really am. I’m very creative or that side. And I love that challenge of finding new stuff.

David

[15:49] You’ve got a great eye for it. Robert. Thanks for that. And I’m going to end the recording now and we’ll carry on chatting.

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How We Got Scammed Out Of $30,000 By Our Chinese Manufacturer

How We Got Scammed Out Of $30,000 By Our Chinese Manufacturer

What happens when you’re defrauded by your manufacturer? How do you handle it? How do you prevent it from happening? What are the best practices? Here’s a true story I wanted to share with you. It happened to us the other week.

So we’ve got this manufacturer we’ve been dealing with for 5 or 6 years now. They manufacture ceiling fans for us. Normally, our payment terms with them are: we pay a deposit and then we pay the balance after the goods are inspected and before they ship.

Bank Account Change

We recently placed another big order with them. Like normal, we paid the deposit and as manufacturing is going on we start getting these communications from the factory. Not our office, but one of our clients – their office got the communications. They pay the supplier directly.

The supplier started emailing them to say, “please note our payment details had been updated, our bank details have changed, and need to remit the money to our new bank account.

So, of course, they exchanged emails back and forth. Finally, the client said, “OK, update the proforma invoice with the new bank details, send that through, and we’ll remit the payment.” This is a good idea in theory.

Now, they didn’t suspect anything was wrong because all the communication came from the normal person they’ve liaised with for a long time. So it just didn’t seem odd, although some alarm bells did go off. “How come, all of a sudden, they’re changing the bank account details?” Interestingly, the original account was a Hong Kong bank and the new one was in the U.K.

They remitted $30,000 US dollars to the UK bank account.

Following Up After Payment

From there we followed up with shipment documents – “what’s happening with the release of the container?” – and it just started getting awfully suspicious. That’s when our staff called the sales lady at the factory and asked what’s going on.

The lady at the factory had zero idea we had paid or about this change of bank account. She was waiting for payment and had absolutely no clue what’s going on. She asked “when are you going to pay so we can ship the goods out?”

You can imagine our surprise.

So, of course, stirred up a whole lot of emails, conversations, communication, us going up and down to the factory talking to the sales lady, the boss. They absolutely, 100% denied this payment was made. We showed them all the correspondence up and down. And she just looked at it and said, “This isn’t us, this isn’t our bank account. We never sent these emails” And so on.

We’ve Been Defrauded!

This is a bit of a catch 22. What do we do? Our initial reaction was that they were defrauding us. But it actually got to a point where they even went to the police station to report the issue, to prove to us that this is not them and that there was some kind of fraud going on.

So, long investigation. Discussions up and down and trying to resolve the matter. And of course, while we try to resolve it the goods aren’t shipping. So we’ve got this whole delay because they refused to ship the goods. And we weren’t willing to pay the money until we can recover what we had already paid. We also launched investigations at the bank to find out what’s going on and they weren’t being very helpful.

This is just really an absolute disaster. 30,000 US dollars down the drain plus stock that we just can’t get out.

Sophisticated Internal Fraud At The Manufacturer

So what happened was, and this kind of came out after about a week or 2 of investigating this matter, the factory had some internal fraud. They had found that one of their people from the IT department logged into their email server, set some forwarding rules on the emails, searching for keywords.

So what happened was every time a customer replied to their emails, these people were getting them forwarded automatically, and sent replies back spoofing the email address. The sales lady wasn’t getting any of these emails because the mail forwarding was based on keywords. And our client was communicating with the person doing the fraud.

This issue is actually still going on. It hasn’t been resolved yet. But these are the sorts of issues we deal with on a regular basis for our clients.

And I am going to give you a conclusion at the end of this, of what I think should have been done, what should always be done, and how easy I think this could have been to avoid.

Resolution Of The Issue

Where we stand right now is we’re trying to settle this 50-50 with the factory but they’re saying it’s not their fault, it’s fraud, they don’t have money for the goods and they can’t ship out. Which we kind of understand. But at the same time we’re saying, “Well, you had fraud in your company. You need to be responsible for what goes on in your company. We paid the money and it’s not reasonable to just not ship the goods. The client needs it quite desperately.”

We offered a compromise. We said, look, we’ll pay 50%. You bear 50%. Let’s write this off as a bad experience. Unfortunately – I don’t know whether this is Chinese culture or it’s just the business ethics of this manufacturer – they just don’t see that they should be suffering any loss at all if it’s not their fault and they don’t see how somebody committing fraud, whether in their organization or not, is their responsibility. That’s another whole issue I should go into at some point, but I don’t know what the answer is.

As of now, the goods haven’t shipped. We are trying to appeal to them and reason with them. We haven’t gone the legal route because we think this is kind of a commercial issue and legal is going to be expensive and take too long. The reality is we need those goods to ship. I think truth be told, what’s going to happen is we’re going to end up paying again, get those goods released, and be a lot smarter going forward. And hopefully, the factory will compensate us on future orders over time.

Some of the takeaways from this experience I want to share with you

Ultimately as the buyer, and you’ll feel the same in different scenarios, you always feel like the loser. You pay for goods, you order goods, you try to do everything on time. And no matter what the problems and obstacles are that get thrown up, you always end up paying, or you don’t get your goods. There’s always this leverage on you, “we’re just not going to ship the goods.”

This is one of the reasons I really recommend LCs – Letters of Credit – because they help avoid these types of problems. But there is a reality – based on the value or your banking facilities – that LCs sometimes just aren’t possible and you’ve got to just deal with deposits and balance payments. So, it’s a case of mitigating risk. That’s really what it is.

And you know, on reflection, here’s a high-level checklist on how these things should be dealt with:

All Important Manufacturer Details Must Be Submitted Formally, In Writing, Signed And Stamped

Any bank account details, company details that you get should be formally sent to you in the form of a pro forma invoice or a form that the supplier fills out that they sign and they chop with their company chop.

Why do I say that? Because basically when you do your first deals with them, these guys do everything properly, everything legitimately. And it gives you a record of what the signatures on the legal documents are, what the signatures on the bank details are, what their official bank details are, their official company details and their company chops.

Those are kind of the key things that you want to have on record from when you start a business. So, the important thing, then, is to control the changes. Every time there’s a change in the company name or banking details on invoices or documentation – which happens a lot in China for reasons we’ll get into another time, but it really does happen a lot – you’ve always got a reference to go back to.

In fact, we use templates which we share with all our clients, for doing this. It is really an important step.

And any change that gets made needs to be verified. How do you verify this? There are two important things to do. Number one is you don’t verify information changes by email and you don’t always accept information changes by email. Treat an email as a notification. They’re just informing you. And you say,

“OK, noted. But what I need is and official company letter sent on official company letterhead, that’s chopped and signed by the owner or the legal representative and says, please note the following change to the company’s details.”

You want to get that document. So it’s formal, you have it on file and on record. One document. You don’t want to be scrolling through chains and chains of emails for these changes, to have a trace record or to prove your situation later.

You then take that document and compare the signatures, the company names, and company chops very carefully to all your previous documents or your initial onboarding documents with these suppliers and make sure it all matches 100 percent.

Get On The Phone With Your Point Of Contact When There Are Changes

The KEY INGREDIENT here for me is this. With any changes – I include changes of quantity process, banking details, company names etc- of any kind, I would always make a call as well.

So contact the supplier on another communication channel. Not Email. We’ve already seen from our scenario how email can be hacked. There are chat platforms like WeChat or Skype, that are helpful. You can check through there too.

But regardless of those communication channels, it’s very important to pick up the phone and call the supplier. Now, if you’re dealing with Susie at the factory, you always want Susie to be the one that says, “Yes, I’ve sent this.” / “No, I haven’t sent it.” Of course, if Susie is involved in the fraud, you’ll have a problem, but at least you’ll know with certainty that she verbally confirmed and that she’s actually involved. So, it’s much less likely for fraud to happen. So, get that verbal confirmation with people you know and that you know are familiar with the company.

Speak To The Boss

The other thing I would do is try to speak to the boss. Try to get the boss on the phone or even on a video call to verify. “Did you, in fact, sent this? Is your company document?” If he says yes, great. You can go ahead and accept it. It’s really important. This kind of thing happens all the time in China and it’s very hard to validate and verify things.

I think calling the boss, or calling your regular sales rep, will help a lot in avoiding these types of issues. That, and making sure that all the changes are done on a formal document that you can compare the details to the previous onboarding details.

Get As Much Official Documentation As You Can Upfront

The more you get upfront from the supplier, the more you can mitigate risks. So, for example, when we onboard a new supplier, we get their company registration certificate, we check that and verify it online. We ask them for their legal representative.
We ask to fill out our form and we asked him to stamp it and sign it so that we’ve actually got a record of the legal representative signature. We would have a record of the official company chop or stamp for that.

(For those of you who don’t know what a chop is, in China and in Hong Kong, they still use stamps. An official company stamp which makes something an “official” document.)

You can copy chops but it’s important to verify that regardless. It’s an accepted business practice.

Conclusion

I think it’s really important to be very careful, have a very clear onboarding, and get the right information upfront from the suppliers so you can keep it on record. And then any changes must come through an official format with the official documentation and signatories and verified with the phone call to the sales rep and ideally the boss.

So, that’s the story I want to share with you. I wish there was a better outcome where we recovered half our money, where they shipped our goods in good faith while we conducted the investigation. The simple bottom line is the goods won’t ship until we pay and we’re probably going to take a knock here on this issue and hopefully recover something good over time.

And you know, the sad thing is on reflection this could have easily, easily, been prevented. You know, no one actually thought of this particular case, of this type of email fraud or hacking. It just never occurred to anyone. It seemed so legitimate, so reasonable, after so many years with the supplier.

So, it just goes to show that discipline of process is critical and phone call verification is just essential in this day and age.

I hope you found this helpful. If you’ve got any questions or any stories you wanna share with us that are similar, please just email me support at globaltqm dot com. I’d love to hear your stories and offer advice where we can. That’s what we do.

Our mission is to make doing business in China easier.

Want To Talk To Us About China Sourcing?

If you want to talk to us and actually speak to us in person, book a free consultation. There’s no cost at all for this. We could talk about your situation, what help you need on the ground in China, and see if any of our services are a good fit for you. And we just love talking to people, so please feel free to do that no matter what stage you’re at on your sourcing journey. The more we talk to you, the happier we are.

Should I Register My Trademark In China?

Should I Register My Trademark In China?

“Should I register my trademark in China?” is a common question I get from clients.

Let me simplify it for you.

There are 3 scenarios that apply.

1) Are you sourcing products from China?

If you source products from China and you buy from Chinese manufacturers, the short answer is YES!

You should definitely register your trademark in China.

We’ll get into why in a minute.

Take my word for it and just do it.

Don’t waste time.

I’ve got so many experiences I can share with you – first-, second-, and third-hand.

And it’s so cheap and easy to register your trademark that it’s a no-brainer.

The protection it offers you, the aggravation is saves you, is worth it.

2) Are you a strong E-commerce brand selling your products online?

Even if you don’t buy products from China.

Even if you don’t sell your products in China.

You still want to register your trademark in China.

And the reason is that the online world is so small.

All the big E-commerce sites like Ali Baba, Taobao, and Amazon are global.

This means they operate in China too.

If companies in China see you doing well with your product, they’ll copy it.

Not just the Chinese, others too.

But in China, they’re great at figuring out what works and what does well, then copying it.

They’ll copy the product AND the brand.

And they’ll start selling it online in China.

It’s quite disheartening because when your customers do searches online, they’ll see the copycats.

This is the last thing you want because it confuses your customers.

And there’s nothing you can do about it.

On the other hand, if you had registered your trademark in China, it very easy for you to approach these online platforms and get the copycat products taken down.

Now, I have to make this clear:

If you’ve registered your trademark in other countries but haven’t in China…

And you need to take a copycat off the market…

You’ll still need to register your trademark in China, prove your use-case, etc.

I fight these cases all the time and they take about a year to resolve.

That’s PLENTY OF TIME for a copycat to kill your brand online.

If instead, your trademark was already registered in China – and it only costs a few hundred dollars – all you have to do is take your Chinese trademark registration certificate, hand it in to the online platforms, and they’ll take it down.

They will comply.

People have this misconception that you can’t protect your trademark in China but you actually can. There’s huge respect for the law.

As long as you have the right documentation, it’s very easy.

Especially with the legitimate online platforms – I’m talking about the big players – that follow and respect the law, having your trademark registered will save you a fortune.

3) Are You Starting A Business?

If you haven’t started selling yet, but you’ve got an idea or you’re setting up your business, you’ll be spending money on setup costs.

Setting up your Amazon account, your business registrations, you’re paying for samples, etc.

My recommendation for you is to spend a few hundred dollars more to get your Chinese trademark registered from the start.

Just consider it part of your setup cost and an investment.

It’s one of the cheapest investments you’ll make in your business.

Because if you’re successful and your brand takes off, a few hundred dollars are insignificant compared to the problems you may have to deal with down the line.

These problems are so vast and so expensive to deal with, and the truth is you almost always get nowhere.

Now, having that trademark certificate with the Chinese registration really gives you a lot of power.

And it is enforceable cost-effectively.

It’s really a misconception that China will rip-off anything.

If you have your intellectual property registered in China it’s very easy to protect.

And again, I’m not talking about international IP, where you’ve registered under the Madrid Convention and you think you’re protected for a year.

That’s all fine academically and in theory.

But protecting your IP this way will cost you thousands and thousands of dollars in lawyer’s fees and so much time and energy.

I say for a few hundred dollars upfront you can save all that aggravation.

Get your trademark registered in China so you can put all your time, energy, and resources into your brand, your reputation, and your product, and not get ripped-off.

Conclusion

To summarize, here are the 3 cases where you must register your trademark in China:

  • You source products from China, nomatter what business you’re in
  • You sell online globally, even if you don’t sell in China or sourcing products from China
  • You are starting a business and are busy setting up all your accounts and business registrations

That last one is like a crystal ball you’ll wish someone had given you, saying,

“If only I had known this at the beginning, it would have saved me a fortune.”

Well, I’m going to save you that fortune now. And I couldn’t recommend it more.

In my client trainings, I share so many case studies where I go into detail about real situations that have happened to me, to friends of mine, cases we’re defending, etc.

This is real, first-hand experience. It’s cost us tens of thousands of dollars.

And the reality is I could have stopped it all.

I could have prevented it all if I had spent a couple of hundred dollars on registering my trademark certificate in China.

And that’s what I want you to do.

If you want to dive deeper into this topic, you can opt-in to watch our free training.

OR if you want to talk to an expert on the phone, book a consultation with us.

This is a subject I’m super passionate about because I’ve been burned. And I really want to protect other people from making these mistakes.

How To Enforce Contracts With Chinese Manufacturers

How To Enforce Contracts With Chinese Manufacturers

Welcome to this week’s podcast episode and I’m really excited because for the first time, I’m actually recording with a guest face-to-face and it’s going to be a real conversation.

Joining me is Yaron Remen. He’s my business partner and has been a mentor to me for the last 20 years.

To give you a little background, Yaron is a serial entrepreneur. He’s SOLD 9 multimillion dollar businesses.

He was the founder of the 3rd largest online retailer in Australia called oo.com.au. And he’s got a real string of successes behind him.

So we’re very lucky to have him talking to us today.

Yaron’s real specialty is starting up businesses, scaling them up big, and then selling them.

So if you’ve got any questions, things you want to ask, please leave comments below.

We’ll make sure we bring Yaron back for more conversations to address some of the topics you want to discuss.

For this conversation, however, I’ve asked Yuron to explain a very sensitive issue:

Why Do We Even Bother With Contracts In China?

Companies who start to do business in China are concerned with enforcing trademark contracts and protecting themselves from any legal issues that may occur down the line.

But the reality is this:

Many of them DO NOT have the means to enforce them.

And even if they do, it’s costly and time-consuming.

So why bother?

“If you go back 20 years or 25 years I think there was certainly a big problem,” says Yaron, “even 15 years ago. It was very difficult to enforce contracts.

“I can say that the last few years I’ve noticed a shift in the market in China. And I have experienced a few situations with Chinese, or Mainland Chinese, lawyers who are becoming quite good at enforcing contracts.

“I think the perception of China being difficult to enforce contracts in, is not a fair perception.”

Yaron says the key is to have a Chinese lawyer rather than a Western lawyer pursue a factory.

“If you’ve engaged in a legal contract and find yourself in a situation where you need to enforce a clause in the contract that’s detrimental to you, I would always recommend you use a mainland Chinese lawyer who understands factories.”

Now, none of this means a thing if you don’t have the means to enforce the contract.

However, there’s a delicate balance of your relationship with the manufacturer versus the contractual obligations you’ve agreed on.

“I think that applies to every contract in any country,” says Yaron. “It costs a lot of money. We know that. And legal fees are endless. They can go on forever.

“However there’s a certain advantage of having a contract versus not having one, for a few reasons. Firstly, everything is in writing. So everybody understands what their obligations are.

“And you’ll find often when you remind the factory of its obligations – ‘in clause 2.1.a it says that you’re not allowed to sell to my competitor’ – and they’ve signed that, most times they’ll say, ‘well, okay,’ and you try and work it out.”

It doesn’t always work like that but there is a kind of moral obligation at play.

Plus there’s always the “threat” of legal action.

The Best Solution And How To Get Factories To Take You Seriously

“Most factories might not take you seriously initially. But if you start getting some traction with your product and your volumes are good, and it’s becoming worthwhile for you to engage a lawyer, you’ll find most factories will take you very seriously.

“But I do have to say the best solution is always to resolve it with the factory before you get to that stage.”

In resolving disputes with the factories Yaron finds the manufacturer’s moral compass and sense of business ethics plays a significant role.

“I think like anywhere in the world you find decent people, decent factories, decent owners of factories, and you’ll find some not-so-decent.

“There’s a certain element of luck because it’s very hard to tell when you start doing business. Everybody’s always putting their best foot forward when they’re negotiating. And that may change later or might not.

“I find as long as the factory has a good understanding of what the agreement is, and has a good feeling they’re going to get more and more business, you have good grounds to negotiate some kind of resolution. If they feel there’s not a lot of business coming sometimes it becomes a bit tricky.”

The “Good Old Days” Of Doing Business In China

During the conversation, I recalled a hilarious story that happened to Yaron back in the early days of doing business with the Chinese.

I’m sure at the time it must have been frustrating. But it’s a good laugh talking about it now.

“It felt like a big deal at the time. Well, it was a big deal. The short version is we were negotiating a contract with a supplier out of Guanzhou, at a factory there. We got some extent exclusive rights from that factory to sell that product (David: they were DVD players) in Europe.

“We were, at that time, doing businesses in Scandinavia and we were trying to get into the German and English markets. We had already placed a lot of orders from the factory for Australia and South Africa.

“I sat with the chairman and his team. And his English wasn’t great, so we have a translator and we hammered out a contract between us with some big minimums, giving our company exclusivity for their products in Europe.

“We shook hands and we toasted after we signed the contract, and he said, right, it’s time to go celebrate. We’re going to go for dinner. And we got into the car, a few of us. And as we’re driving out of the factory, I noticed the warehouse loading a container about 50-100 meters from me.

“I looked closer and I could see the brand on the boxes was a brand that I remembered a competitor of mine selling in the UK.

“So the question I asked was, ‘What’s going on? I see you’re shipping stuff from the UK. We just signed a contract!’ And he started laughing said, ‘Oh yes, we sell to the UK, we sell to Germany, we sell everywhere.

“So I tried to, through the translator in the car, say, ‘well, can you please explain to him we just signed a contract?’ He said, ‘Oh no, that’s just the contract. We will sell to them and we’ll sell to you and come and have dinner.’

“So I think that explains, those days were a little bit different. Of course, it can still happen.”

Back in those days, the factories would sign the contract just to get the orders without any regard for the terms in the contract. I asked Yaron if he thinks that’s changed now.

“Yes. I definitely think it’s changed,” he says. “Things have gotten clearer. I think the understanding of an obligation is more clear.”

“BUT I have seen, in recent years, quite a few incidents where the intention of the factory is to deceive. And that’s why we have checks and balances when it comes to do factories.”

How To Remove The Possibility of “Misunderstanding” Contracts

When getting contracts signed, you want to make sure the manufacturer is actually reading the document in full before signing.

If they sign the contract too quickly just to move on to the next stage, that can be a bad sign.

You want to see them taking their time and actually discussing the points in the contract.

Understand the difference in priorities here:

  • The main aim of factories in China is to get more orders and more business.
  • The main aim of somebody starting a business is protecting their interests.

“What I would recommend is have a contract made and if it’s in English, add in a sentence in Chinese – have it translated – saying ‘I hereby confirm that I have read this contract and I’ve had it translated for me into Chinese.’”

This is a crucial point because there are a lot of translation differences. And going from one language to another, there can be misunderstandings.

“Sometimes there are misunderstanding but sometimes it’s only an excuse to say there was a misunderstanding. And that’s why the signing of the extra clause in Chinese, while it may not protect you legally, will eliminate that excuse because they signed it in their language.

“So I always recommend that, though it’s obviously not a guarantee.”

True, there’s never a guarantee.

What it comes down to is removing doubts. You’re removing misunderstandings and trying to be as risk-free as possible.

“I never like to use the word risk-free in China because there’s no such thing. But ‘removing as many obstacles as you can by protecting yourself.’”

The final point Yaron mentioned is to reiterate that if you’re planning on investing a large amount of money in China, to get a mainland Chinese lawyer who understands the law.

This way the contract, from the start, will be written in a way that it can be enforced in China.

Conclusion

To summarize Yaron’s advice:

  1. Invest in a mainland Chinese lawyer so the contract is written in a way that it can be enforced in China.
  2. Like anywhere else in the world you’ll find decent business owners and not-so-decent, so be prudent.
  3. Include a clause in your contract, in Chinese, that says “I confirm that I have had this contract translated for me in Chinese and that I have read it in full and agree to all its terms.”

Like I mentioned earlier, if you have any questions about contracts or doing business in China in general, leave your comments below.

Yaron and I would be happy to record episodes on whatever topics you want to learn about.