10 Ways to avoid the pitfalls of sourcing in China – 1 of 10
The essential guide in taking the risk out of sourcing from China
Let me introduce myself, I’m Bruce Elliott, owner and Managing Director of JuvaPro, a Supply Chain Specialist in Construction, Hotel FF&E and manufacturing companies that produce parts and components for a large variety of industries.
Over the last decade I’ve seen huge changes affecting my industry and customer base. None greater than the arrival and dominance of China in the Global manufacturing arena. Manufacturers such as myself were given a simple choice; Change or Die!
Fortunately for me we’ve adapted to those changes, and have re-sourced the most appropriate parts of our business out in China. When venturing into unknown territory, the risks were high and the learning curve often painful, but now we’re sourcing from China on a regular and successful basis. I’m even helping some of my old customers source their components and parts from China that they’d have traditionally sourced from me, as I know there’s absolutely no way I can compete on price – like I say Change or Die!
I’d like to pass on my experience of dealing with China so that other UK companies can also trade successfully with China, and more importantly, not expose their businesses to excessive risk when they take those early tentative first steps.
I’ve identified 10 major pitfalls that I believe to be of crucial importance when dealing with companies in China that should save you a fortune, and could even save your business!
I hope you find my experience useful, and it stops you making some of the costly errors I made when first sourcing from China. If you need further help, please don’t hesitate to contact me if I can help you in any way.
1. Protect your intellectual property
Before you even consider whether your products and components are suitable to be made in China, you must think about exactly what you’re risking by sourcing from China – and that’s your intellectual property.
So what can we class as your Intellectual Property?
1. Patents and copyrights on your product
2. High value proprietary design
3. Your Ideas
4. Your brand
5. Your channel to market
6. Your customer base
7. Key Business Relationships
Copyrights, Designs, Ideas and Brands.
You must assume that if you source from China all of these will be copied with ruthless efficiency and effectiveness. You may even find that if you try to source one of your new product designs from China, a copy of your design appears on the market before yours!
And what can you do if your product is copied?
Not a lot!
Have you ever tried to sue a company in China? In all of my years experience trading with China, I don’t have any personal experience of any cases of a Chinese company being sued successfully for copyright infringement. So please assume that if you have a product worth copying, there is a strong likelihood that it will indeed be copied.
Customers, relationships and Channels to market
You must also assume that if a company in China can trade directly with your customer, distributors or contacts, they may do so, as you’ll simply become an un-necessary link in the supply chain. So protecting your relationships and customer base is just as important as protecting your product.
How can Intellectual Property be protected?
1. Firstly ask yourself, will this product/ my business be damaged if it is copied? For example, it’s often wise to source sub-components of products rather than finished goods in China. Copying components has reduced commercial value, as the sub-components are only useful to you. However if you need to source an entire product, ready to be sold to the end user, then this can clearly be copied, to your detriment.
2. Is it possible to conceal your customer base? If you’re having unbranded goods produced, then it should be fairly simple to conceal your customer base, but say the product has ‘Marks & Spencer’ stamped onto it, then you’re clearly not going to keep this customer for yourself. So if dealing with well know brands or distributors, you should be extremely protective of this information.
3. Can your market be reached from China? If you have a fairly fragmented market i.e. lot’s of well dispersed customers buying your product, then you may well find this working in your favour, as this type of market can only really be effectively serviced from the same country as the customer base, or through established distribution. This makes it an unattractive proposition for a china based business to target. Conversely, if 60% of your business is with 1 key customer, then the alarm bells should be ringing!
So in summary, there are many forms of intellectual property it would be wise to assume it will be taken from you if you don’t protect it.
Need to discuss protecting your intellectual property in China? Contact me via my website here, as I may be able to help.
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