Outsourcing Supply Chain Management: Make Your China Business Work Better

August 13, 2023
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If you are a logistics manager in an international company, you’ve probably asked yourself: “Why is it so hard to export to China?”

When you export to other countries, you call your freight forwarder, arrange the pickup time and let your forwarder handle almost everything else. If there are some issues at the port of entry, they normally make sense and are easy to solve.

When you export to China, you do the same, hoping to forget about the shipment, But then, the phone starts ringing with all sorts of surprises. If you are lucky, the shipment has not yet left your country and you have a chance to fix the paperwork or meet other requirements. If you are not lucky, you start getting phone calls when the shipment lands in China. From that moment on the clock is ticking, since every day of storage at China customs can cost a fortune, but the most frustrating thing is that the import requirements just don’t make sense!

Well, Welcome to China.

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Some logistics managers who read this article may not have had this experience. If that is the case, we can assume that they simply let their distributor or client to handle the importation into China. This is indeed an easy solution, but it comes at a cost.

In most cases the receiver (i.e. distributor, end user, agent, etc.) will use “relations” to import the products into China, and any cost involved will be charged to the international seller. At this point, the receiver can claim almost any amount from the overseas seller (you) whether the amounts were paid or not for customs clearance, VAT, Duty, storage at the port, transportation in and out of the port, loading and unloading and many other hidden costs. If the seller does not need to pay upfront or reimburse the importing party, he will pay it through a higher selling price to the end user.

This will push the price up and will make your product less competitive vs. the local competition – not to mention international competitors who have taken control of the importation process and their entire Supply Chain Management in China.

So, what can be done? The answer is simple: use a trustworthy partner that specializes not only in the importation process but in the entire supply chain all the way to the end user.

Stage 1: Research

If you are in charge of the supply chain in your company, the moment you hear anyone talking about exporting to China, you should start preparing. You can do the research yourself about your products’ requirements, but the information is often in Chinese and might not include the latest regulations. We recommend using a reputable trusted partner with enough experience to check the latest regulations for your products. You must be prepared for a frustrating experience; the amount of information and documents you may need to present may seem unreasonable. But all the effort will be worthwhile later when the shipment will arrive to China. Preparing before the shipment is sent out, will always get you better results than rushing to try and “rescue” the shipment out of Chinese customs.

Stage 2: Providing information

Basically, China customs will want to confirm that the imported products meet the right HS code classification and therefore will need the information to prove it: Product brochures, technical manuals, MSDS documents, CCC certifications, detailed description of raw materials, etc. The more information you provide, the easier it will be for the import agent to facilitate the customs clearance process.

If your import partner has the right connections, it may check with the customs officer for an “unofficial pre-assessment” BEFORE the shipment has even left your warehouse – giving you a chance to correct anything that might be missing.

At this stage, your import partner will have a good estimate of the cost that will be involved in the process and how long it would probably take to release your shipment. Of course, the final ruling will be conducted by the customs officer. If the preparation process is done properly, there shouldn’t be any big surprises. This will help you to quote your prices to your clients in China more accurately.

It is very important to follow the instructions given to you by your import partner. Do not improvise or make any modifications to the shipment documents. Do not change any of the products in the shipment other than what is mentioned specifically in the shipping documents. Do not add extra items like brochures, spare parts or any other additional items that are not mentioned in the shipping documents.

Taking control of the entire supply chain process

Taking control and improving the transparency of the importation process can be obtained with a good freight forwarder that has an office in China, and who can check everything and ensure your shipment’s timely release. However, if the import agent charges all the extra cost to you and doesn’t suffer any consequences if the customs clearance is delayed, then there is no incentive for the import agent to prioritize your shipment. Therefore, it is important to have a trusted partner in China that shares your interests. This is why you need a “Supply Chain Partner” rather than an “import partner”.

A Supply Chain Partner (“SCP”, also known as a 4PL partner) will guide you through the entire business transaction process. This includes reviewing the sales agreement and supply chain conditions, delivery methods, delivery deadlines, and penalties. This also includes keeping in mind external factors such as Chinese or overseas holidays, while also negotiating and handling inland transportation methods, currency exchanges, payment terms, credit control issues, VAT refunds and bank fees.

If you have a team on the ground in China, they will probably do this for you. However, if you don’t have a team in China, we would strongly recommend partnering with a trusted Supply Chain Management team that can examine all financial and logistics aspects and point out potential risks.

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Avoid distributer dependency

Without having a company in China, it may seem that the only way to sell into China is either by relying on a distributor/agent or selling directly to your clients. We already mentioned that the distributor might not necessarily have the same interests as you and therefore may not be fully transparent. Take it from us: the last thing that the distributor will want to show you is the cost structure in China, starting with import costs, VAT refunds and selling price structure.

But that’s not all. Many times, all import and sales licenses are registered under the distributor’s name, which creates a dangerous dependency on his good will. In the scenario that you will need to change or add distributors, or sell through other channels, you may find that all of your Chinese assets – from licenses to digital accounts online shop and websites – are registered under his name.

Same interests, better results

A reliable Supply Chain Partner will not only advise you but will take an active role in the process. In a way, the SCP becomes “your agency” for the entire business transaction. You are both aligned with the same interests, and this makes for a more efficient, cost-effective and transparent process.

How does this actually work, you ask? Your SCP could represent you by signing the sales agreement with your client according to your instructions and in coordination with your sales team in China (if you have one). This way, the SCP can assess all potential risks involved in the deal. Since the SCP is the seller, the risks and liability are on him. It is in his best interest to protect both himself and you.

Once the SCP signs the sales agreement, he will place an order with your HQ to supply the products agreed upon in the sales agreement. The SCP will handle the importation process as described before but this time, since his reputation is on the line, he will handle the importation process to protect not only you but also himself and make sure the importation process is efficient, risk-free and meets Chinese authority requirements.

A trusted partner in China who makes sure your business activity is run in a legal and transparent manner, with zero surprises. This is not wishful thinking. It’s the smart choice, and it is easily attainable.  Contact us to get things started.

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