The usefulness of due diligence when evaluating a vendor in China

What people are saying about Mulberry Fields
“What you say is absolutely true about what you need to do in order to succeed in China.” – a company in Italy

I recently had a customer run a credit report on a vendor he thinks he wants to do business with. The report came back and everything looked OK. The Company is in good financial shape and has had no litigation on record for the past three years ( not really a long time by which to measure but still acceptable). My customer had met them at a trade fair in NY this Spring and really likes them. He said they had a very professional presentation and very good products. I looked at their website and I must say it is very nice. They do projects for some big global companies so quality is probably pretty good. And most importantly for my customer, who is focused on cost, their prices are very good.

But after doing some research I realized that this company is just part of a big 11 company HK/Taiwan/China conglomerate. This somewhat concerns me because conglomerates can be very bureaucratic. And in China some conglomerates include bankrupt state run companies which may indicate that management leaves something to be desired (the government does not want these companies to go under so they put them in a group of other more successful companies). Most importantly from my own experience working for small companies that sourced in China from big suppliers, if the PO QTYs are not substantial you often do not get the service you want. An Account Manager is usually assigned to your account and things go well or not depending on the dedication and efficiency of the manager. You very rarely, if ever, have a chance to contact with the GM or owner of the company. When you work with a smaller company you do. This is not necessarily to say that small companies are always better. Sometimes they are and sometimes they are not. The point is you should be aware of how a vendor’s size may impact your order. Or, as I put it to my customer, he will go from being customer # 1 at his current vendor to just another customer at the bigger vendor. That is still perfectly OK if what he stands to gain is a lot. But if he is the kind of person who likes to involve himself with production and is in the habit of working closely with his vendor, working with a big vendor might be frustrating.

My customer is planning a trip to China to visit with this company. He has already said that if he likes them he will give them an order. My advice to him was to try to find some other vendors in the same geographical area and to visit them as well. He should then be able to see who he feels most comfortable with. It may be that the company he met in NY will be so attractive to him that he will not be able to say, no. Or it may be he will be put off by their size and the fact that he has no access to decision makers and will decide to go with a smaller vendor who may offer more service tailored to his needs. We shall see.

Due Diligence is such an important concept when you do business in China. Here are some more posts on that:
Product saftey standards
Selecting a sourcing company
The basic due diligence on your China vendor
What happens when you do not do your due diligence
A red flag vendor

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