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A Guide to Doing Business Face to Face in China
Firstly where do I go and how do I get there
?By far the best place to start is with the Canton Fair in Guangzhou - www.cantonfair.org.cn which runs in April and October. The best way to get there is by flying into Hong Kong either direct or indirect (a short stop over in Dubai is usually cheapest) an economy ticket should set you back around 395. Once in Hong Kong there are a variety of ways of making it up to Guangzhou but I find that the easiest and cheapest way is by train, all trains run from Hung Hom station in Kowloon and arrive at Guangzhou East station in Guangzhou, tickets are around $190HK one way.
What paper work do I need?
You will first and foremost need a Chinese Visa which you obtain through a Chinese embassy here in the UK -http://www.chinese-embassy.org.uk/eng/lsyw/chivisa/. You will need a Letter of invitation from a company or institution in China or Visa Notification Form issued by an authorized unit in China (Visa notification refers to the form of visa notification issued by the Chinese government departments, companies and social organizations authorized by the Chinese Foreign Ministry. For detailed information, you can consult the foreign affairs office of the province, autonomous region or municipality directly under the Central Government where your host is located ie Guangzhou. You can also apply via the Canton Fair website. You will also need to register for the fair, again can be done through the website.
What to expect at the show
The show is HUGE and covers just about every sector of product that you can think of. The show is made up of booths each representing a factory, trading company or agent. It is impossible to gauge the size of the company just by their booth, don't judge a book by its cover, some of the smallest booths are inhabited by the largest companies. A few years ago we stopped at a very small booth just showing a handful of products, we now spend around $1.5 million a year with them!!
Take your time and wander around for the first day and identify the useful looking booths and make a note of them to come back to. There is no point spending hours at the first interesting company you come across only to find the same thing 50 meters away but 20% cheaper.
Once you have identified the companies you wish to talk to then go back on day two and establish the following information .....
1. Are they a factory, broker or agent?
2. What port do they ship from? (if you are buying lots of products try to group them in the same area, it is then easier to consolidate)
3. How long have they been in business?
4. What are their MOQ's like?
5. What are their prices like?
Once you have found someone you are happy with you can either try and do a deal there and then but to be honest it is very difficult as there are hundreds of people around and not everyone has our standard of British manners. People will interrupt you all the time and butt in, it really pees me off and many a time I have shouted at rude people!! It is better to take their contact details and do the negotiations by email once you are home. I can't guarantee that all companies at the show are legit, you will need to research them carefully but to be honest the Canton Fair is VERY expensive to exhibit at and this tends to discourage most if not all scammers.
For people who are starting out I would suggest going through an agent to begin with, you will have to pay them 5% but they take all the hassle out of doing the transaction. They sort all the paperwork, arrange freight to the shipment port, consolidate with other peoples goods if you are buying in less than container loads. This is especially useful if you are buying a large spread of products. They can also be used to inspect and audit goods before they leave China just to check that there are no surprises'.
Your other option (if you have time) is to arrange with sellers at the show to visit their showrooms after the show, depending on where they are, remember China is huge. Sitting in a nice air conditioned office is a much better way to conduct business.
As a guide here are the main production cities Shenzhen, Shantou, Ningbo (mainly wooden items), Shanghai, Xiamen and Fujian.
The next step
Once you have established a supplier or group of suppliers you need to go through the red tape......
1. How do I get the goods to my door? Use a freight forwarder, someone like Cedar Forwarding to handle all your paperwork shipping costs, freight transport, import duty etc. They will organise everything for you. My advise would be to use sea freight as it is much cheaper than air freight.
2. Does the item conform to EU directives and will it need testing? this is a real minefield. I only really know about my area of trade toys but most products will have some kind of regulations attached to it. If you are in any doubt get in touch with a test house who will be able to guide you better. The Northern Test House in Leicester are very good -http://nthleicester.com/
3. Make sure the agent/factory know how to label your goods. It is LAW that all imported goods into the UK carry the importers details company name and postcode so that if there is ever a problem with the item then it can be traced back to you. If you do not do this you are breaking the law also check to see if it require a CE mark or any other safety warning.
4. If the item is electrical then you must sign up and pay for WEEE membership, again if you don't then expect fines and a huge head ache! -http://www.environment-agency.gov.uk...ste/32084.aspx
5. If the item contains chemicals then it must conform to REACH regulations -http://www.hse.gov.uk/reach/
6. What duty will I have to pay? - Use a calculator like this one -http://www.dutycalculator.com/
Be aware some items like candles and plastic bags now come under new Anti Dumping Regulations and the duty rates are huge!!! -http://customs.hmrc.gov.uk/channelsP...yType=document
Once you have done all this then you should be ready to go ahead and arrange to pay for your goods
How should I pay?
Most suppliers will quote for FOB Shanghai' in other words they will pay for all transport up until the port of shipping Shanghai. You can go down the CIF route (cost,insurance & freight) but expect to pay a premium for it.
In most cases, especially if it is an initial purchase, China suppliers will rarely offer "net terms", for example, "net 30" (the buyer pays 100 percent of the value 30 days after receiving the goods).
Keep in mind that for the Chinese factory, net 30 terms really mean 120 days of project finance -- 30 days to buy the material, 30 days to process and produce, 30 days to ship (to North America or Europe) and 30 more days to wait for payment. It is certainly possible to achieve net terms for payment to China, but it will probably be easier for you to move to better terms with your supplier after both sides have established a working relationship and mutual trust. Be prepared not to have net terms during the initial phases of the relationship.
Don't be surprised if a supplier asks for 100 percent payment in advance. But also realize this is negotiable, just as you wouldn't necessarily accept the first offer of price without a negotiation. I have found that "30-40-30" terms are often an acceptable middle ground on payment terms, fair to both parties.
Under 30-40-30 terms, the initial 30 percent of the PO value is paid up front as a deposit. This allows the supplier to buy materials and lock in the price, which can be especially important if you have a long lead time or deal in materials that face great price fluctuations, such as metals. The second payment, the 40 percent, occurs at shipping upon confirmation of quality. The final 30 percent is paid upon receipt and inspection at the final destination. Let's look at this 30-40-30 from both the seller's and buyer's perspectives to find why it is an acceptable middle ground.
Sellers worry the buyer will default on payment, so getting 70 percent (30+40) before the goods leave port limits their exposure. Since the average factory in China makes between 10 and 30 percent mark-up, the 70 percent covers at least the majority of the supplier's internal costs, meaning even if the buyer defaults it won't leave the supplier out of pocket.
Buyers' biggest concern is that the goods will have quality issues or not arrive at all. By holding out on the final 30 percent until delivery, the buyer retains some leverage if quality problems require re-work or replacement parts. It is also important to remember that the 40 percent is not paid until after the goods are inspected in China, so quality confirmation must be a key part of the payment process. This is where an agent can be useful. Ask for pictures or samples of the goods before they are shipped.
Once the goods arrive expect a short delay at customs while they inspect the goods and check that everything is in order.
And thats it!!
A Guide to Doing Business Face to Face in China
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