Some things to consider when you have a new product and need a mold

Someone came to me with a new product the other day, an artistic and fanciful light fixture that they want to have made in China. They have tried to find someone to manufacture the product here in the US but, as you would expect, the cost is prohibitive.  The person has had some rough molds and prototypes made here and suggested that he could send these to China and have someone there run some samples for him and then maybe a small production order.  Not a good idea, I said.  There are a few things to consider here.

  • The molds this person has made might not be compatible with machines in China In fact, I bet this would be China vendor response were he to send the molds to China.
  • Compatibility of machines notwithstanding, vendors in China stand to make a good profit if they make a mold for a customer and they do not want to forfeit this profit.  And this is why when you get quotes for molded products the mold costs can be all over the board, so to speak. If you ask three vendors to quote on a mold, chances are their quotes will be off by thousands of dollars, because someone is making a hefty profit from the mold. I had project a few years ago for which I needed a mold and the quotes, for the same mold, were anywhere from $3,000.00 to $20,000.00.
  • If you send a vendor in China a mold you may not be able to get the mold back. You never know who you are dealing with and the vendor may just take the mold and start using it themselves.

If you do get your mold made in China make sure you know who you are dealing with because sometimes a factory will claim they own the mold, even though it is your design and you have paid for the mold.  There have been so many disputes like this over the years between SME’s and vendors in China that you just have to expect it to happen.  Just go over to the China Law Blog for some stories. To protect yourself you should have everything spelled out clearly in writing, as to who owns the molds and when they will be returned to you, and you should also be sure you have legal rights to your design before you ask someone in China to make the mold for you.

Finally, really the best way to do a molded product would be to have the CAD work done here in the US, including drawings and 3-D renderings, and then to send these to China so a mold can be made for you. In this way, you can project to vendors in China that you are serious about your product, for drawings look official and will show all proprietary information. Should any dispute arise with them you will have a record of your designs, what you would not have if you asked the vendor to do both the CAD and mold for you.

Needless to say, these are all costs you have to expect to incur if you have a unique product that you want to have manufactured overseas.  But if you can do it, it is worth it.

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Attending the Canton Fair for the first time ? Prepare, prepare, prepare.

The Fall Canton Fair is coming up next month.  I have not been to the Fair in a couple of years and I do miss it, from the excitement as we get on the shuttles to the fair every morning to a cold beer in the hotel bar with other traders at the end of a long day.  It is kind of like being on tour with the Rolling Stones.  I always prefer the fall fair to the spring fair because the spring fair usually coincides with the onset of rainy season and with May Day which can make travel in and out of China pretty uncomfortable.  The fall is much nicer weather wise and the major fall holiday, National Day, occurs well before the fair. So if you are planning on attending one of these fairs, by all means go in the fall.

I had an email from someone the other day who is headed over to the Canton Fair next month. He will be attending Phase 2 of the fair looking for toys for his online business. This will be his first visit to China and he is understandably nervous.  I told him he needs to prepare, prepare, prepare.  This means putting together a list of the vendors he would like to meet with, contacting them prior to the show and then mapping out his visits beforehand.  The fair is too immense to just ‘wing it’ as they say.  If I remember correctly Toys take up Hall 14 1-3 and some space in adjoining halls 13 and 15 meaning there are probably between 1200-1500 toy vendors.  Needless to say, no one can visit that many vendors in a few days’ time, and by not spending time on the CF website before the show, contacting suppliers, you may miss some perfectly good vendors if you walk the show unprepared.   Additionally, there is a psychological benefit to contacting vendors prior to the show, for you go to Canton feeling that you know someone.  And when vendors know you are coming they are usually very welcoming. This will make you feel more relaxed and give you more confidence as you walk the show.  You need that confidence because not only are there so many booths to walk past but everyone is Chinese. If you are coming from Boca Raton Fla is the person who emailed me is, then you are probably going to feel like a fish out of water in China.  Whatever you can do to minimize this feeling you should do. The more relaxed you are in China, the more positive you will feel about your business there and the better will be your chances for success back home. And it all starts with preparation.

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5 questions you need to ask yourself before you source in China

The other day I read an interview with former GE CEO Jack Welch. In the interview he said of China “ China is a very difficult place to do business and you can’t just use simple Western techniques.” I love it when I read these things because as I like to say, if it is that difficult for GE to do business in China, imagine how difficult it is for your garden variety Main St. USA small business to do business there. You just cannot expect not to have problems in China if you do business there and that is why you have to ask yourself a lot of questions before you begin your China sourcing. Because, in fact, if you are not careful you may find that sourcing in China becomes far more expensive than you had anticipated and you put your business at risk. So some of the questions I think every start up or small business owner should ask themselves before they get involved in China are as follows:

  1. What is the true landed cost of my product ?  Landed cost is the cost of the production, inspection, and shipping.  When you consider all these costs your unit cost may go up considerably and well beyond your target cost. I think too many people look at product cost alone and think they have a business. I can remember working for a furniture company and pricing out some chairs for a large retail buyer.  The first cost ( the cost of the product alone) was very good but by the time we added in the shipping costs the project was not viable. The reason: Chairs are bulky, they damage easily and you need to pack them very well. Consequently it is very expensive to ship them from overseas.
  2. What are the packaging costs ?  When you get that quick quote on Alibaba, it does not include packaging.  Retail packaging can be expensive and you need to figure this into your final product cost. You may find that it costs you $0.50 to put packaging on a wholesale $ 3.00 item. Needless to say, that just does not seem worth it.
  3. Who is going to do my inspection in China? Am I prepared to travel to China to do my own inspections? And how much is this going to cost ?  The only way to minimize risk when you source in China is to check the product before the vendor loads it into the container.  Needless to say, if you have a 50,000 pc order and it costs you $ 10,000 to fly to China and inspect it yourself, you will have to add $0.20 to your product cost. So let’s say $ 0.20 for the inspection, $ 0.50 for your creative retail packaging and another $0.25 for shipping. Before you know it that $1.00 you thought it was going to cost you to get a product from China has quickly become $ 1.95, almost twice what you thought.
  4. How much is it going to cost to retain the services of a shipping agent?  International shipping is far too complex to do it on your own.  Any small business that wants to source overseas needs a logistics company or shipping agent. These are the guys who book the vessels and clear customs for you. They can save you a lot of money and you should see them as indispensable to your business.
  5. What product safety requirements does my product have and how much cost is this going to add to the product to have the vendor comply? This is a very important thing to consider. Vendors have different grade materials for different markets.  Usually the stricter the environmental/safety standards, the more expensive the product is.  Sometimes the cost of the product will double if the buyer requires a top grade material.  But if you are selling in a market with these regulations you need to meet them.

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Is manufacturing really coming back to the US ?

I love reading the Wall St. Journal. In addition to great book reviews and the always interesting human interest stories at the bottom of page 1, there is a lot of China news, usually in the Marketplace section. This past week there was an article entitled “It’s No Fun Making Toys or Toasters in the USA.” As the headline suggests the article was about the challenge that small business in the US face when they try to manufacture here in the US. In fact if you are a toy company and want to get, say, a plastic toy made in the US, it is almost impossible to do so. The main reason is that US manufacturers are just not set up nowadays to handle large orders, most of those orders having gone to China over the past 20-30 years. So China now has the infrastructure and the US does not. This is nothing new, really, and I have written about this before here. Making dolls in the US But I like to see these stories now and then in the major news outlets because I think they offer a good dose of reality and offset the almost fantasy like stories about manufacturing returning to the US. Because you know, with very few exceptions you just can’t make low cost consumer goods in the US anymore and have a viable business. A case in point: I received an email from a vendor in China the other day and this vendor was offering a 3 pc breakfast set , a table and two chairs, made out of particle board and powder coated steel. The price $ 28.00. And I am sure if I went back to him and told him I wanted to place an order for 1000 pcs I could get it for under $20.00. And there are probably 1000 more vendors like him in China. Do you think there is any place in the US where you can buy a breakfast table and two chairs for $ 28.00 ? I seriously doubt it.

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Watching the Super Bowl in China

As we approach the Super Bowl I like to think back to my early days in China when if I wanted to watch an important football game I had to go to great lengths to do so. In those days American sports were not broadcast on regular Chinese TV and there was no cable. But there were ways to watch.

My first year in Shanghai I wanted to see the 49ers play the Redskins in the first round of the NFC playoffs. I am from the SF Bay Area and grew up a 49er fan and I was a big fan of the team in the Joe Montana/Steve Young era so this was a game I did not want to miss. I called the Sheraton in Shanghai, one of two International hotels in China at the time, and asked them if they had CBS and if I could watch the game there. They replied that it would be OK but that I would have to check in for the night. In those days one night in the Sheraton cost $ 170.00, not really something I could afford but which I agreed to do nevertheless. That the game was to be coming on at 5 am did not discourage me from putting a small cache of chips, beer and candy in my backpack and putting on my 49ers jersey when I headed over to the hotel. In those days no one cared what foreigners did in China and I was determined to watch the game just as if I were back in SF watching, even if that meant drinking Qingdao beer at 5 am. To say I was excited would be an understatement.

I got up around 4 am to see the tail end of the Buffalo-Oakland game on the only foreign channel in the hotel. So far, so good I thought to myself. At 5 am I called the front desk and asked them to switch over to CBS which they promptly did. About 20 minutes into the first quarter, as I was reclining on the bed munching some chips, the signal faded and was then lost. I quickly got on the phone to the front desk to complain. Over the course of the next three hours the staff at the Sheraton did everything they could do restore the signal. They sent a group of 3-4 technicians up to the roof of the hotel to adjust the dish in the torrential rain. I will never forget the sight of these guys coming down to my room, the rain dripping profusely off their pochos to report to me in great earnestness that they were working on it.   But in the end and despite the heroic efforts of the Sheraton staff the game never came back on. I had to wait until the next day to read in the paper that the 49ers had won. I had paid $ 170.00 to watch 20 minutes of a football game. If there was any consolation it was later when I wrote to the Sheraton and in return received a couple of complimentary nights at the hotel.

The following week when the 49ers were playing the Giants in the NFC Championship I used my connections at the University where I was teaching to watch the game in the University Communications center. This was no mean feat given the strong distrust of foreigners in those early days of Deng’s reforms. At 5 am on game day a technician from the Communications Center met me at the building where the satellite dish was located. It was a fortress and there were security guards but I had clearance and I was ushered into a room which looked like Mission Control. I got to see the game on a big screen TV, the first one I had ever seen. I had dispensed with the beer and chips but had a great time watching the game and chatting with the technicians. The Chinese love sports and I think they appreciated my fanatical loyalty, even though American football was a game they did not understand. Unfortunately the 49ers lost. But at least I had found a more economical alternative to checking into a hotel. Or so I thought. When I asked later that week about watching the Super Bowl between the Giants and the Bills the University said they could no longer permit me to watch the satellite TV. And that was that. In retrospect I was somewhat relieved that the 49ers had lost, for had Roger Craig not fumbled with two minutes to go in the game I most likely would have been back at the Sheraton the following week.

After that first experience trying to follow the 49ers while living in Communist China things got a lot easier. Expat bars opened up and among them was a Canadian managed sports bar that had a satellite dish. If I didn’t watch there I got to know people who lived in luxury foreign residences where there was a satellite dish. So on game day I could always hop in a cab and go somewhere to watch the game.By the time I left Shanghai, in 1995, the Super Bowl was broadcast live on Shanghai Cable TV. It was still odd eating guacamole at 8 am but I won’t tell you it was not fun

That last Super Bowl in 1995, when the 49ers were playing the Chargers, was on Chinese New Year. I arranged to watch at a friend’s house and I brought along some fireworks, because it was Chinese New Year and I thought it would be fun to light off fireworks after each 49er score. The 49ers racked up 55 points that day and I am sure must have cut a very strange figure to some of the octogenarians in that alley every time I ran outside in my red jersey and bandana to light off some MD-80s and Roman Candles.

Watching the Super Bowl in China these days is probably no different than watching in America. The game is on everywhere. There are replica jerseys on the streets of Beijing and Shanghai on game day. There are Super Bowl parties everywhere. But I am glad that when I lived in China East was East and West was West. We had a window onto a unique China in reform that few people were privileged to gaze through. And even mundane activities, like watching a football game, were seldom mundane.

Enjoy the game !

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Ordering in small QTYs when you are starting a business

I have a client who is starting a new line of private label products and he wants to order in small QTYs from China, the goal being to see which products do well and which products do not  before he pours a lot of investment into anything. These are low value added products which retail at under $ 20.00. He sent me a list of about 10 products and the QTYs he wants to get from China are from 250-500 pcs per item. I like my customer’s common sense here, for I think in any China sourcing project it is good to start small, no matter what your projections or gut feeling may say. At the same time, often what gets a vendor’s interest is large order QTYs so an order of 250 pcs may have few takers. And if someone did take the order, it would not be a priority. The one exception would be if my client had a longstanding relationship with one factory. In this case the factory would willingly take the order because they would view it in terms of the larger relationship. Getting factories with whom you have done business over the years to take small orders is rarely a problem. But my client is starting out so he really does not have these kinds of relationships with factories in China right now.

For this reason, I have advised him that it is best to work through a trading company with this order, and one that specializes in the type of product he wants to import. In addition to run-of-the-mill trading companies that run the gamut in terms of what products they sell, you will find trading companies in China that are dedicated to one product category only e.g. auto parts, to stationary items, to toys, to baby products etc. I worked through a trading company once that specialized in silk flowers and automotive parts. It is an odd pairing but it worked for me because I was sourcing silk butterflies for a company in California. Had I been sourcing refrigerator magnets it probably would not have worked. So if you are looking for a trading company, it is good to remember this. Because the last thing you want to do is unknowingly give an order to a trading company that really has no expertise in the product you are interested in. You have no way of knowing this unless you do your research.

At the same time working through a trading company means that my client will have to lower his product standards considerably. Because trading companies are not the primary manufacturer and cannot be expected to attach importance to any but the most basic quality requirements of the customer one has to lower their standards accordingly. So when my client is already voicing about how he can tweak this or that on a product or how he can improve quality, I told him, forget about that. You are just ordering 250 pcs of something with minimal value. Right now just see if you can get these products out of China with your own label at a cost that works for you. Once you do that you can gauge the interest in the market. Even if a customer buys something and returns it for quality issues, my client will have seen that there is interest in the product, which I think is his goal now. When he knows which products garner interest and which do not he can then start thinking about bigger QTYs and approaching factories directly with orders that will get their interest. And then he can spend more time thinking about product quality and design.

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When your business grows, you need to grow with it

The owner of a small company in Chicago called me this week. His company manufacturers a kitchen product and they have been in business for about 7 years. In that time they have gone from one employee to eight. They bring in 3-4 containers a month from China and they are showing up in a lot of major stores now including Pottery Barn and BBB. The owner, Randy, told me that he has some worries as his business begins to grow, his main concern being that he has no idea who in China is making his product, as an agent there in Chicago handles all of his orders. As he rather bluntly but succinctly put it to me, “if this guy gets hit by a bus tomorrow then my business is screwed.” He is correct there. The lack of transparency in your supply chain should be a big concern, and the bigger your volume the more you should worry. Randy told me his agent there in Chicago seems reluctant to divulge the name of the factory in China to him, something he is becoming more uncomfortable about. At the same time he has an offer from another Chicago-based agent to handle the business. This new agent is promising him NET 60 terms. The current agent requires a 25 % deposit and payment in full once orders have been received so this is another reason Randy is looking at alternatives now. He called me to ask what I thought he should do.

My advice to Randy was to suggest a trip to China with his current agent to look at his product, see the factory and maybe inspect an order. He has not been to China yet and it is time, after 7 years, that he went. I told him that he has every right to see where his product is being made and to meet the people who are making it. If his current agent balks at this suggestion then Randy should begin to look for a new agent ASAP or, better yet, consider finding a factory and going direct to China with his orders. He seemed to think this was a good idea. I emphasized that his current agent has helped him to build his business so he should appreciate that and give this agent a chance to work with him on making his supply chain more transparent and efficient. But Randy’s is a very reasonable concern and his agent should know this.

Regarding, the new agent who is offering Randy NET 60 terms, I told him I have never heard of anyone offering NET 60 out of China. Randy said he believed the agent had a relationship with the factory that allowed him to offer these terms. That is very possible because most agents in the US have close relationships with factories in China. In many cases the agent in the US is a relative of someone at the factory in China. Still it just seems too good to be true and I don’t think any factory in China is willing to take that risk. I mean the goods could sit in Randy’s warehouse for a month before he was asked to pay for them under a NET 60 arrangement. Anyway, I told Randy not to put much credence into this offer but it wouldn’t hurt to do a small order or two with this agent to see if he honored the terms and, more importantly, how quality held up.

Overall, Randy is thinking in the right direction. His business is changing and he sees the necessity to change the way he does business.

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Sourcing effectively in China is about being smart and practical

A small startup in Houston called me last week. They are looking for a supplier in China and they wanted to sound me out about helping them. They are focused on two goals as follows:

  1. They want a native English speaker with China experience to take them into China.
  2. They want to be sure that there are no surprises when they receive their orders.

Let’s look at both of these:

I think they have the right idea in terms of wanting to work with an American who has experience in China. This will save them a lot of time for the cultural gap between China and the US is so vast that you can spend a lot of time trying to bridge that gap, sometimes with little or no success. It just makes a lot of sense to have someone on your team who understands both your business and the country where you are having your product made. I don’t think you can underestimate the value of this. Beyond the obvious there is the trust factor as well. There are very upstanding vendors in China but there are a lot of unscrupulous vendors as well and the latter far outnumbers the former. If you do business with a vendor in China you really have no way to check on them, all the self-promotion and Alibaba gold certifications notwithstanding. If on the other hand you work with a an agent or liaison from your own country you can easily check their references and you will feel confident about going into China. So I think there is a tremendous comfort factor in approaching China with a local on your team as this company from Houston is trying to do. Think about it this way: The best thing is to know you can trust your supplier. But this takes years, if you can reach this level of trust at all. The next best thing is to know you can trust the person taking you into China. This takes a few days.

Their second requirement that they want to be certain that what they order is what they get is wishful thinking. This really is an American way of thinking which has no practical application in China. I told them that the only way to ensure that you are getting what you order is to go to China and inspect everything before it goes into the container. Needless to say, for a small company or start up on a shoestring budget this is not realistic. Even for big companies with big orders 100% inspection is unrealistic. I emphasized that sourcing in China is all about reducing risk. But you can never eliminate that risk altogether ( unless as I said you inspect every piece). The goal should never be a perfect order but simply an order which allows you to meet the demand from your customers with ample stock on hand.

In short, sourcing effectively in China is about being smart, going into China with someone who has experience there and it is about being practical, not expecting perfection from your China partners.

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Looking for a bank to handle your China orders

Someone asked me the other day about setting up a bank account before they start sourcing in China. They wrote as follows: “Are there certain features or account types that are particularly useful to make transactions as efficient as possible?” This is a good question and the short answer is no. I told her that the main thing was to look for a major global bank that has an office in China e.g. Citibank, HSBC, etc. The reason is that there are often problems with international transfers and it is helpful if you have a bank in China to unravel the knots, so to speak, In fact, I would say about half the time that my clients send payment to China there is a problem with something, usually on the paperwork. For example, sometimes a SWIFT code or beneficiary address may be wrong and it can take a few days to straighten out. All the while your sample or production order sits on your vendor’s desk even though they have assured you they are working on it. In fact vendors never start on a project until they get paid. Even if they tell you they have started you can pretty much be sure they have not. So getting a payment to a vendor in China ASAP should be a priority.

So if you have a regional bank that you use for your business and you are thinking about sourcing in China it probably is a good idea to look for another bank that has more international reach and experience.

All banks charge wire transfer fees and you should not be too concerned about this but instead should see it as part of your overhead. I had a customer once who really balked at paying wire fees. She did not want to pay a $30.00 wire transfer fee on a 10 K order. I understand that overhead is a major concern for any small business owner. But considerations about overhead should never take sales off the table. Some banks may have more beneficial rates and a wider range of business services, but are they set up to handle your China business is a question you need to ask.

Another expense to consider is postage fees to get samples back and forth to China. The last four years of helping small businesses and startups source in China has taught me one valuable lesson, never rely on regular air-mail or express mail from the US or Canada to send samples to China. Half of the time they never get there. When sending samples, you should use a major international carrier like UPS, FEDEX or DHL. This is the only way to ensure that your package will reach its destination. Once again, the idea is to use someone who has reach in China. FEDEX does. USPS does not. One of my customers sent a fabric swatch to a vendor in China using USPS Express mail. It cost him $50.00 and it never got there.

Needless to say sourcing overseas can get expensive. These are all “hidden” costs but If you want to source in China, or another country, you have to absorb them.

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Some things to keep in mind for first-time China goers.

I was on a skype call with a prospective client the other day. She has a new product/business and would like to start sourcing in China. She has approached some manufacturers here in the US but with no success. Not only are costs to make her product, an apparel item, prohibitive in the US but she said the response she received from companies was tepid at best. Some of them didn’t even respond to her which is odd given her professional background and serious level of inquiry.

She had some questions for me which I answered. Her questions and my answers might be useful to others who are thinking about sourcing in China so here they are:

Question:

Does one need to speak Chinese to do business in China?

My answer:

No, it is not necessary and there are plenty of people who do business in China and who do not speak Chinese. But here is a fun, and I think reasonable way to look at it: not knowing Chinese will never help you and may hurt you. On the other hand, knowing Chinese will never hurt you and may very well help you. The big picture is that the Chinese want you to respect them and one of the best ways to show them respect is to make an effort to learn their language. This does not mean you have to go down to your local college first thing Monday morning and sign up for an intensive Mandarin course but you should at least  learn some greetings and maybe even a few proverbs, your knowledge of which will make a good impression on the people you meet in China. Just remember, big companies can afford to hire locals with good English skills to help them in China. Small companies must do everything on their own.

Question:

How do I find and settle on a supplier?

My answer:

Locating good suppliers is just a process of establishing contact, sending out samples and requesting counter samples and working with vendors to get to your target costs and achieve product quality you are happy with. One thing to pay close attention to when you are feeling out suppliers is how well do they communicate with you.  Do they reply to your emails promptly or do they make you wait ?  Are their answers to your questions perfunctory or thoughtful ? Do you have a feeling that they want your business ?  Just remember this: if the communication is sporadic to begin with, it will not be any better once you order. And in fact it may get worse as you ask more questions requiring more thoughtful and detailed answers.

If you are working with printed patterns then you will need to provide vendors with all artwork and pantones. I have often said that one really needs to finalize design before approaching vendors. Some of these vendors are very busy and if you approach them with a design and then change that design along the way they get frustrated. And it sends them the message that you are not organized/professional. So the first step is to finalize your design and have all the artwork on file.

Question:

How much will it cost to get samples?

My answer:

Cost of samples will vary depending on your design. If you want to use printed fabric with your own design, of course there will be a charge to cut a screen (usually $100-$200.00). If you have definite material or fabric requests then you need to send your vendors swatches and let them source for you. Often when you have specific material requests vendors may not have adequate stock of that material on hand and may have to use a substitute fabric. This is OK. A note on zippers: You should specify YKK because Chinese zippers are pretty bad. And even with YKK you have to be careful because there are plenty of fake YKK zippers in China.

Question:

What should I do to protect my designs/product in China ?

My answer:

For protecting all IP it is a good idea to register your trademark in China as well as in the US/Canada. The cost to register a trademark in China is 600-1000 USD if you use a Chinese lawyer and probably 3 or 4 times that much if you use a lawyer in CAN or the US. The key about IP is this: Don’t be paranoid about having someone take your name in China. Big companies are most often the targets. But don’t be nonchalant about your IP either. Stuff happens in China and you just want to do all your DD and take the same precautions you would take in your own country when starting a business, and this includes registering all IP.

Question:

If I work with you how can you guarantee that I will get what I order ?

My answer:

No matter who you work with when you do an order in China and no matter how good you think your supplier is you can never be 100% sure that what you order is what you are going to get. All you can do is try to reduce your risk. And this means vetting your suppliers before you give them orders, showing up occasionally to make sure they are keeping your company’s standards in mind, and checking your orders in China before they ship and you have to pay for them in full.