Top 6 questions to ask: Due diligence on Chinese manufacturers

October 13 2015

China has been a 'world factory' for 3 decades. Some commercially savvy Australian companies successfully leverage China’s manufacturing capability to enhance their supply capacity and price competency for Australian and overseas markets while others only have bad stories to share.

A key success factor in leveraging China’s manufacturing capability is to work with a 'safe' manufacturing partner – a genuine manufacturer that is capable and committed to working for you in China.

The internet makes it easy to quickly identify a long list of self-proclaimed Chinese manufacturers with professional websites, however, foreign companies may find themselves overwhelmed by the choices available to them and end up with faulty products imported from China or working with a 'suitcase' company – a Chinese term to describe fraudulent/fake businesses.

To ensure that you're dealing with a suitable manufacturing partner, conducting due diligence on your potential Chinese manufacturing partners and/or suppliers is a must.

Below is a list of questions you must include in your due diligence on Chinese manufacturers and suppliers:
  1. Is the business a genuine business? Obtain a copy of their business licence and, if possible, check with the local Commerce and Industry Administration Bureau on the legitimacy of the Chinese business.
  2. Is the business a manufacturer? Chinese middlemen know that you would prefer to cut down on costs and go directly to manufacturers, and hence claim they manufacture what you need. Again, please obtain a copy of their business licence to check their business scope and/or investigate with local government agencies and industry bodies directly or through a China business consultant. Chinese companies may provide you a fake business licence. Hence it is highly recommended that you secure a copy of their business licence through official channels or a third party service company.
  3. Does the Chinese manufacturer have surplus manufacturing capacity and capabilities to meet your current and potential demand if your business was to grow? Check with the company about their manufacturing capabilities. If you are placing big orders or are looking at working with a long-term manufacturing partner, it is worth visiting the Chinese manufacturers yourself to better assess their manufacturing capabilities.
  4. Does the Chinese manufacturer have a quality control system in place? Do they have an international quality accreditation? Obtain a copy and check with the authorisation organisation.
  5. Is the Chinese manufacturer a reputable business in the industry, and do they protect clients’ intellectual property? Check with industry bodies, their clients and suppliers and conduct secondary research to find information on the company’s reputation.
  6. Is the Chinese manufacturer committed to working with you? If your business is not vital to them, you will find yourself at the very bottom of the list when they prioritise orders, and they may delay the production or delivery of your order during peak time.
The China team at Australian Business Consulting & Solutions conduct due diligence on Chinese companies including manufacturers, distributors, wholesalers, retailers and more. If you need help with due diligence, please contact Sara Cheng:sara.cheng@australianbusiness.com.au

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Image: Export Growth China team in Shangahi Showroom