Chinese Factory Nightmares Part 1

[et_bloom_inline optin_id=optin_3]

Gary Huang comes back to join the series. Gary is based in Shanghai China since 2008 and is sharing his Chinese factory nightmares situation, what went wrong and how he addressed it.

First product is an exercise bike, had a client in Brazil who was opening a gym…

Ordered a batch of 100 bikes

  • Gary placed the order
  • Visited the factory
  • They sent him a sample
  • They tested the bike and it seemed okay

Nightmare 1 – Customs

  • Wanted to give the client a 1st-hand look at the bikes
  • Sent a sample bike to the customer in Brazil
  • It was held up at customs
  • The customer was asked to pay an exorbitant  customs duty on the bike (several times the cost of the bike!)
  • Tried for weeks with emails back and forth to explain it had no value and was just a product sample
  • Sent customs the commercial invoice paperwork but no joy
  • Dumped the sample in the end otherwise it would have cost the client a fortune

What happened?

  • It wasn’t the factory’s fault – they can’t be import experts
  • Onus is on the client to know what the ‘import duty’ is
  • A lot of Sellers overlook the cost of import duty and get stung
  • A smart seller finds the HS (Harmonised System) code to identify the classification of the product and find out what the duty is

Import Process and Duty – Chinese Factory Nightmares to avoid

  • FOB cost of the bike was mid $100 dollars
  • For Brazil the import process is very complicated and they are very ‘protectionist’ on imports
  • It’s hard work and you need to do your due-diligence to make sure it clears
  • They [customs] wanted to charge over $1,000 on a $100 Bike
  • Danny hit a similar problem importing into Japan and he had to be careful not to hit a ‘westerner/tourist’ Tax that they can sometimes apply
  • Brazil has had a lot of Presidential scandals for corruption
  • So it makes sense to hire a professional freight forwarder or customs broker to help you navigate and sort things out

How did Gary fix it?

  • The sample didn’t go through
  • So the Brazilian client accepted Gary’s judgement on the product
  • Gary released the shipment from the factory
  • The supplier got paid for the shipment

Nightmare 2 – unfit for purpose

  • Once the client received the shipment, then the chinese factory nightmares real problems started
  • The Bike stability was a problem
  • The Brazilian users were a lot taller and heavier than the Chinese factory
  • The Bike made noises when they were riding them and customers complained
  • It seemed the Bikes were just not able to cope with the users
  • The client demanded the factory fix this problem
  • Gary was the intermediary between the factory and the client
  • He had to communicate the problems
  • Try and figure out the solutions and get the replacement parts

Koreans are not like Brazilians – consider your users

  • The factory complained and said they had shipped lots to Korea and had no problems
  • But the Koreans are a different body shape to the Brazilians who are quite big
  • So you’ve got to make sure your products fit the market
  • After several weeks back and forth Gary was able to negotiate a deal
  • Agreement with Factory on replacement parts, defects and replacement work compensation
  • Very difficult to get a factory to compensate you – usually a credit but Gary negotiated a compensation payment
  • Took a lot of time to get replacement parts and repair the bikes

Lesson learned

  • Engage in a thorough test
  • Consider the local markets
  • Think about the users (Asian versus Latin America users weight and body shape)
  • Zara Spanish brand when they arrived in China, the dresses were for tall Europeans and were way too long for Chinese girls…big brands hit this problem too!

Key 5 Lessons

  • Find a way to test the bike more extensively – not a quick test ride
  • Consider the local market and how people will use the bikes
  • Use the ‘country test’ – Gary asked the factory where they ship to, they said Korea and it should have been a red flag to Gary then
  • Do your due-diligence on the local markets (in Germany the email follow-ups are not allowed and you can be fined)
  • Negotiating compensation is possible but was a pain in the but, had to talk to the factory manager (and Gary speaks Chinese and it was hard work)
  • Always catch problems before the product leaves the factory floor – it’s cheaper to get it fixed in China than overseas

Free eBook from Gary

Click to get your ‘Ultimate Guide to Negotiating with Chinese Suppliers’ ebook from Gary Huang