QUALITY CONTROL IP Protection- Can We Trust Our Suppliers?P.7

LOGISTICS Product Liability P.11

PROJECT MANAGEMENT Achieving Focus When Sourcing From China P.14

LEGAL China’s Legal System Pt. 1 P.16

FINANCE Kelly’s 1st & 2nd Laws of China Sourcing P.19

TERMS OF THE TRADE P. 22

TRADESHOW CALENDAR P.23

TOOLS OF THE TRADE Voiding Contracts P.24

CHINESE CITY INFO Shenzhen P.26

THE LAST PAGEFor those who need a laugh P.27

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ISSUE FIVE— JANUARY 2011

Managing Expectations

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As I was traveling through Hong Kong last month, I was pleasantly surprised to hear Christmas music over the PA system in the airport customs area. And it wasn’t the PC plastic-snowman Christmas music that is all you can play in the US, but the real, traditional, “Hallelujah Chorus” style of music. I noticed that people were smiling and opening doors and getting luggage off of the belts for other people--for a moment, it seems like everything was frosted with a bit of the Christmas spirit.

And then I was run over by a guy with a flag and about 20 tourists and the luggage they had. I got out of their way, and just as I was about to mutter something less than Christmas-worthy to the last passing tourist, I heard the music again and just shut my mouth and smiled. True story.

This really happened to me. And it got me thinking: probably one of the funni-est things that I have ever read about working in China was a quote from some expat teachers living in Beijing who said: “To most Chinese, win-win is a panda bear in Sichuan.”

I know that in my years of working in China, more than once I’ve started ne-gotiations with that attitude in mind--and you know what? It’s a self-fulfilling prophecy. When I think that it’s me against the world, that’s exactly how it all turns out. I’m sure that much of the not-getting-to-win-win in these situations was my fault. I went in spoiling for a fight, and no matter what was said, that’s just what I got.

While negative attitudes are surely unintentional, this probably happens a lot more than we’d like to admit. With the bad economic situation lingering on there are additional pressures and hard feelings. Combine the latter with the uncertainty and trust issues on both sides of the table and you have situations that make polite and effective negotiations almost impossible. Even when we go into things with a good attitude and desire to make thinks work out for everyone, there are so many other variables that can affect what we do; and what’s done to us.

The working environment in China today is tough. There are a lot of buyers and suppliers that are being “weeded out” of the mix. The low-hanging fruit is gone. So people on both sides of the negotiations are sharpening their wits and their pencils to make sure that they make it through to the other side (where the grass is greener).

That day in the airport I realized, probably for the thousandth time, that win-win is pretty much up to me. That even though foreigners are no longer trusted and treated like ten years ago, and while currency issues make even the sim-plest of transactions more difficult, if I want to get to win-win, I still can. It’s my choice.

So here’s to hoping that you have/had a great holiday season and that you’ll help your Chinese counter-parts have a great Chinese New Year (Feb 1, 2011) too. And while it may indeed be easier to catch sight of a wild panda bear than work out deals that make everyone happy all the time, here’s to hoping that for all of the new year, we’ll all make the attempt to at least meet the other guy halfway.

Hallelujah!

David A. Dayton, Editor, CSIC

Letter from the EditorBy David A. Dayton, Silk Road International

About the Editor Founder of Silk Road International

David Dayton is the owner and manager of Silk Road International (SRI-www.silkroadintl.net). David has nearly twenty years experience working in and with Asia and he leads SRI from Shenzhen, China. Besides Shenzhen, David has lived, worked and/or studied in Thailand, Taiwan, and Chongqing, China.

David is a regular presenter for Global Sources’ New Buyer Training seminars in Shanghai and in Hong Kong. He has also spoken for Global Sources’ Supplier Education program and the Metering China Xi’an Sourcing Show. David has been published in Euro Biz magazine, Right Sight Asia, Garden International and other trade publications and on numerous sites online including the China Economic Review, the New Zealand government’s international trade information website and China Success Stories. He has been interviewed by the BBC, CBS 60 Minutes, the CBS Evening News, the Hong Kong Trade and Development Council and by NPR on china-related issues. His blog postings have been on the WSJ China blog “best of” lists.

David has a Master’s Degree in Southeast Asian Cultural Anthropology, focusing on Comparative Chinese and Thai Corporate Cultures and a BA in International Relations and East Asian History. David has worked as a consultant, manager, trainer and translator on both sides of the Pacific and he is fluent in both Thai and Mandarin.

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Questions to the EditorFeel free to ask any questions via e-mail at questions@ChinaSourcingInfo.org or on our website www.ChinaSourcingInfo.org

With more and more international banks allowing for buyers to open RMB accounts overseas, what are the advantages of this for the buyer?

I think that there is a large group of buyers working under the false assumption that since all prices are often given to foreigners in for-eign currency that all payments must be made in foreign currency. Buyers that are based in China and especially those that have local RMB bank accounts already in the PRC, like myself know that a) you can pay in RMB, and b) that factories prefer it, and c) you’ll probably get a better deal if you pay in RMB d) if the invoice is in USD but the supplier’s internal costs are in RMB, they are probably building some extra margin into the quote to cover their potential exchange risk. The reasons the prices are given in foreign currency is that most fac-tories assume that the buyer doesn’t have RMB, rather than because they don’t want RMB.

The good news is that thanks to recent changes to China’s currency exchange regulations, it is now possible for overseas buyers to open RMB accounts in their banks back home outside of China.

Are there any limitations or extra costs of paying in RMB?

Two factors to consider

a) Even if you have a RMB account set up back home, it is not much good if your bank hits you with high exchange fees as you move from your local currency into your RMB account at that bank. Check your rate vs. what your supplier gets to see which one has the overall sav-ings.

b) I believe that there are limits to the amount of RMB that can be transferred daily from the overseas RMB account. I have also heard that most of the overseas banks offering RMB accounts outside of China only allow individuals rather than corporations to open such accounts. Check with your local bankers.

The China Sourcer Magazine

Magazine of the China Sourcing Information Center (C.S.I.C.) www.ChinaSourcingInfo.org

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Editor-in-ChiefDavid Dayton

Executive EditorDavid Bruns

Chair of the CSIC Advisory BoardMike Bellamy

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EditorDavid Bruns

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Copyright: All content published in The “China Sourcer” is owned by CSIC and may not be reproduced in any print or online publication without written consent from the CSIC Board of Advisors.

Any other Q?Feel free to ask by e-mail at ques-tions@ChinaSourcingInfo.org or on our website

QUALITY CONTROL LOGISTICS PROJECT MANAGEMENT LEGAL FINANCE

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I make a point of attending the Hong Kong and Canton Fair gift shows twice a year, in late April and late October. When my friends in America ask me why, I tell them that I primarily attend to identify and defend against sup-pliers attempting to knock off and sell our products. China has become a free-for-all with respect to intel-lectual property and many suppliers are merely embarrassed, rather than scared and quick to act, when they are caught red-handed.

Many buyers at the Chinese and Hong Kong fairs fail to consider that they may be buying products protected by law as intellectual property (“IP”) not owned by that supplier. An im-porter, without realizing they have done something wrong, can also be sued for trade dress, which is defined as “the non-functional physical detail and design of a product or its packag-ing, which indicates or identifies the product’s source and distinguishes it from the products of others.”

It is commonplace nowadays for sup-pliers to market and sell products that another company asked them to pro-duce. It is also common practice for these suppliers to be sent the product to duplicate or for them to discover the product somewhere and reproduce it. This behavior represents the outcome of a cost-benefit analysis, in which most suppliers do not recognize costs and determine that it is worth the risk. In a country with the competitive mentality of dog-eat-dog and a still emergent regulatory regime, ethics sometimes take a back seat to financial opportunities.

But in China, buyers are not the only parties suffering mistrust; suppliers are equally vulnerable. Sadly, these suppliers have learned much of this mistrust from entrepreneurs from the United States and other high-GDP

countries who constantly scour the tradeshows and trade websites such as Global Sources and Alibaba for less expensive and better quality products.

From what I understand, many years ago Chinese suppliers used to bend over backwards to form and maintain long term relationships with their buy-ers. Respecting the wishes of their vendors, whom they perceived as life-long business partners, these suppli-

ers kept prices stable even when their costs spiked and protected propri-etary products with their lives. There are still suppliers who do think and act this way, but I am finding them fewer and farther between.

My companies own many utility and design patents and have also filed many of these same patents interna-tionally. We always file in China be-cause the country houses such a large percentage of the world’s consumer goods manufacturing and IP protec-

tion enables us to catch and enforce our rights against Chinese suppliers knocking off our products. Through-out years of attending many fairs in China, I have found so many suppliers displaying knockoffs of products—ours, those of companies owned by friends of ours, and other well-known IP-protected products.

I’ve heard from many people that the Chinese government is cracking down on counterfeiters and have read several stories about the government coming down hard on firms selling misappropriated and illegally repro-duced DVDs, CDs, purses/handbags, watches and other items. The Chinese government experiences vigorous international pressure from countries and large corporations to enforce intellectual property offenses. Today they are doing a better job of this than ever before. Our challenge, though, is that we may only rely upon ourselves to proactively discover these instances and alert the government.

One of our new products recently became especially successful and we decided to use one supplier to manu-facture the product. We visited this factory on multiple occasions and felt that we had formed a strong, mutu-ally beneficial relationship, as well as a clear understanding that this product is our legally protected intellectual property. We instructed them to only manufacture this product for us and to prevent other trading companies from marketing or selling it.

In April, as our first container of the product was en route to the U.S., I at-tended the Canton Fair and discovered our product in the booth of another company from the same city as our supplier. It was our exact product and, to our knowledge, nobody else in China had ever seen it besides our sup-plier. A few years beforehand, I had

Can We Trust Our Suppliers? SUPPLIERS, IP PROTECTION

By David Sternlight, dlight41@gmail.com

Many buyers at Chinese and Hong Kong fairs fail to consider that they may be buying products protected by law as intellectual property (“IP”) not owned by that suppliers. An importer, without realizing they have done something wrong can also be sued for trade dress.

QUALITY CONTROL LOGISTICS PROJECT MANAGEMENT LEGAL FINANCE

encountered a situation just like this one. Upset and feeling betrayed, I im-mediately took a hard stance with the infringing supplier, asserting that this was our product and that we were go-ing “to come after” them. I’ve learned quite a bit since then.

Nowadays, I walk calmly into the booth and try to collect as much information as I can about what they call their “new product:” its price point, its MOQ, the countries in which they are selling it, etc. I then ask for a copy of their cata-log, take a picture of the product with the booth number in the picture, and finally inform them that this product is ours and that we own the rights to it in the U.S. and in China. Thankfully, we work with Chinese attorneys who have written powerful letters that often elicit a few nervous faces. Between a letter such as this and what I tell these firms, we make clear that they need to discontinue selling the reproduction immediately or there will be legal and financial consequences. In addition, we emphasize that we will legally pur-sue importers bringing our products to countries where we own the intel-lectual property rights. We have yet to pursue any of these infringing sup-pliers after alerting them because we monitor them vigilantly and follow up. We do this in many ways, for example, sending emails from different email addresses to ask whether they are still selling it.

In April, after the fair ended, I traveled to our supplier’s factory and men-tioned that another supplier in their city was already showing our product. The supplier told me that this other factory had visited our supplier’s fac-tory recently and must have stolen a sample out of their showroom. I ex-plained to them very clearly again that this product was our property and was not to be exported anywhere without our authorization, not to be exhibited at any trade show, and not to be dis-tributed around the trading company circuit, as many products are. They assured me that this would never hap-pen again.

We enjoyed a more positive relation-ship with them until October, when I went back to Hong Kong and Guang-zhou for trade fairs. At the Hong Kong

fairs, I stumbled upon one company selling our product with our packaging and another company selling not only our existing product, but also other products we were still developing in collaboration with our supplier. Prior to the fairs, I let our supplier know that I was attending the Canton Fair as well and found out they were also going to be exhibiting. We proceeded to talk about the days I was going to be there and I told them I would stop by their booth.

When I arrived at our supplier’s booth, I immediately noticed our product on display. Thankfully, they were busy at the time with other customers, so I took my pictures without their aware-ness. I acted like I wasn’t paying much attention when they were finishing up with these prospective customers. Out of the corner of my eye, I noticed that the owner of the factory recog-nized me and proceeded to take our product off of the shelf and hide it beneath a cabinet.

While I expected to speak to them about the two suppliers I encountered at the Hong Kong shows, I didn’t know that our own supplier was doing the same thing. I sat down and began a conversation with the owner of this factory and their English speaking rep-resentative, who has been my point of contact throughout our business relationship. I began the conversation addressing the other two suppliers selling our product. Both were from the same city as our supplier. I showed them their catalogs, which included our product and the products in de-velopment. The owner immediately called up one of the suppliers, got off the phone and told me through the interpreter that it was taken care of. They claimed, like in April, that this fac-tory must have taken the product from their showroom and that they would take action.

Regarding the second supplier at the Hong Kong fair, I was told at the booth that the second supplier had actually approached our supplier to manufac-ture our product and our supplier was upset that we were trying to source this outside of their factory. A few months earlier, we began speaking with a company that specialized in

sourcing out of China as we wanted to add some design elements to a few of our products. I had provided them a few samples of our products, including this popular product. The prototype I had given the company was a revised version on which we worked with our supplier during my visit to their factory

in April, and the other company had subsequently sent this product to this new manufacturer in China.

After our supplier explained this to me, I then asked them why they were showing our product at the Canton fair. My contact at the factory told me that she specifically advised the owner not to do this, but that he insisted they show it. She also explained that the owner had suffered a head injury and had not been thinking correctly. I then asked them if our product was in their catalog. They changed the subject twice, so I walked over to where their catalogs were, opened one up and located our product inside. I kept this open, turned around the catalog and gave them a puzzled look. They of-fered up another excuse that when the owner was hospitalized with his head injury, their marketing director assem-bled the new catalog without know-ing whether to exclude our product. By the time the owner and my contact were made aware, they claimed not to have had enough time to change it. They apologized profusely and told me that none of this would happen again. I reminded them that they told me the same thing in April and asked them what they had not understood then.

The owner, through my contact, insinuated that he felt betrayed because we tried to source through another factory and were being disloyal to them.

QUALITY CONTROL LOGISTICS PROJECT MANAGEMENT LEGAL FINANCE

The owner, through my contact, in-sinuated that he felt betrayed because we tried to source through another factory and were being disloyal to them.

I had a choice to make: Would we continue to work with a company that continued to ignore our demands to protect our IP or should we cut our losses immediately, pursue legal ac-tion and seek a new supplier altogeth-er? Churning in my mind was the Chi-nese proverb: “Fool me once, shame on you; Fool me twice, shame on me.” Recently, our companies have been quick to disengage with other entities that we feel are operating unethically. But in this situation, a few thoughts oc-curred to me:

- We unfortunately did not have an-other supplier on which we could rely for quality and the nuances of our product. Furthermore, we needed more product immediately. We have since developed a relationship with a backup supplier.

- We have been to the factory multiple times and, aside from these encounters, have developed mean-ingful personal relationships with the factory leadership for over a year.

- I did somewhat sympathize with their sentiments of betrayal. I know very well we need multiple sup-pliers, but our primary supplier rea-sonably felt like we were preparing to work exclusively with a competitor.

I made the decision, at least for the short-term, to continue the relation-ship with the caveat that, if we discov-ered anything like this in the future, we would immediately discontinue work-ing with them and proceed with legal action. I know from previous dealings in Chinese commerce that enabling people to save face (even when they are clearly in the wrong) is important to cultivating relationships. So I apolo-gized to them that we tried to source this out at a factory other than theirs and invited them out to dinner that night.

At dinner, the conversation was fo-cused on improving our relationship and both sides felt self-expressed. I already have noticed a significant dif-ference in the quality and openness of

our communication since the dinner meeting. That said, there is no doubt both I and our legal team in China have been keeping track of this situation. I will also certainly return to the shows in April to monitor the situation with this product and our other product lines.

Besides monitoring intellectual prop-erty protection, attending these shows is extremely useful to observe what new products are being produced, identify upcoming trends within the different industries, and to gauge the pulse of what is happening in the sup-pliers’ world. Additionally, it’s always good to speak with potential backup suppliers and ready them for backup production in order to mitigate risk and keep your primary supplier “hon-est.”

I advise so many of my fellow import-ers to attend trade shows and monitor sourcing websites to ensure that their products are not being misappropri-ated and illegally reproduced. Word travels quickly in China when a prod-uct is successful. It is our responsibil-ity to protect our products and that requires concerted effort and special attention. I would also recommend signing confidentiality contracts with your suppliers to explicitly document the agreement that they may only sell a product to your company and may not disclose this product to other companies in China. But even taking these steps to mitigate your risk, risk nonetheless remains. We must always remain vigilant and creative to protect our most valuable intellectual prop-erty.

About the AuthorDavid Sternlight

David Sternlight is the CEO of multiple companies specializing in the invention and import of products in the gift, pet and travel industries. Prior to this, he worked in the real estate industry and played basketball professionally, his team winning the European championship in 2000-2001. He, his wife and his 2-year-old son live in Los Angeles, California.

The China Sourcing Informa-

tion Center (CSIC) is a publish-

er, not a producer, of content.

The views and opinions of the

writers are their own. The CSIC

is not responsible for any views

expressed by our writers.

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QUALITY CONTROL LOGISTICS PROJECT MANAGEMENT LEGAL FINANCE

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This article is an introduction to the basic legal concepts that are neces-sary to gain an understanding of legal liability and, more specifically, product liability from the perspec-tive of a business owner who has goods manufactured in a foreign country and imports those goods into the United States. A consumer who is injured while using a prod-uct may sue the manufacturer be-cause of a defect in the product that caused the injury. Such instances of alleged wrongful conduct by one person or entity that cause injury to another are governed by tort law. Tort law, as opposed to criminal law, is the area of the law that addresses injuries caused by a breach of a civil duty owed to another party. But who bears the responsibility for the injury if the entity that caused the injury resides in a foreign land? Before answering this question, let us first explore some basic legal concepts.

In decades past, caveat emptor (let the buyer beware) was the prevail-ing philosophy in contract law. This may have been a realistic approach

when buyers and sellers of goods were more or less equally capable of judging the quality of the goods that were the subject of the transaction. However, it is unlikely, in the 21st century, that any consumer will comprehend the work-ings of any but a few of the goods he or she purchases, much less grasp all of the inherent risks, be able to assume them intelligently and have the finan-cial wherewithal to pay for any result-ing injuries or damages. As a result, caveat emptor has given way to a more consumer friendly approach known as warranty. The concept of warranty is based on the seller’s assurances to the buyer that the goods will meet certain standards.

The concept of duty of care arises from the idea that if we are to live in society with other people, some actions can be tolerated and some cannot; some ac-tions are right and some are wrong. The basic rule of duty is that people are free to act as they please so long as their ac-tions do not infringe upon the interests of others. Tort law measures duty by a standard of reasonableness – the rea-sonable person standard. The reason-able person standard is not how any one

person would act, but society’s judge-ment on how people should act. If the so-called reasonable person existed, he or she would be careful, conscientious,

even-tempered and honest. If a person has knowledge, skill, or intelligence su-perior to that of an ordinary person, the individual’s conduct must be consistent with their superior knowledge, skill or intelligence. In other words, that indi-vidual has a higher standard of care; his or her duty must be reasonable in light of his or her superior capabilities.

A person is considered negligent when another party has suffered an injury caused by the failure of said person to live up to a required duty of care. When an individual is negligent he neither in-tends to bring about the consequences of his act, nor does he foresee their oc-currence. He merely creates a risk of the consequences occuring.

Strict Liability is a doctrine of tort law that states that people may be held li-able for the results of their acts regard-less of their intentions or their exercise of reasonable care. As an example, a construction company that uses dyna-

Product LiabilityA brief overview

INSURANCE, REGULATIONS

By William Hughes Product Liability Insurer

Importers are held liable for broken products sourced from abroad.

A person is considered negligent when another party has suffered an injury caused by the failure of said person to live up to a required duty of care.

QUALITY CONTROL LOGISTICS PROJECT MANAGEMENT LEGAL FINANCE

mite in road construction is strictly li-able for any damages caused, even if it takes reasonable and prudent precau-tions to prevent such damages. It is the insurer of last resort.

Strict liability is imposed by law as a matter of public policy. This public policy rests on the threefold assump-tion that (1) consumers should be protected from unsafe products; (2) manufacturers and distributors should not be able to escape liability for faulty products simply because they do not have a contractual relationship with the ultimate users of those products; and (3) manufacturers and sellers of those products are in a better position to bear the costs associated with inju-ries caused by their products than con-sumers – costs that they can ultimately pass on to all consumers in the form of higher prices.

In order for a manufacturer to be sued under the doctrine of strict liability there are six basic requirements:

1. The product must be in a de-fective condition when the defendant sells it.

2. The defendant must normally be engaged in the business of selling that product.

3. The product must be unrea-sonably dangerous to the user or con-sumer because of its defective condi-tion.

4. The plaintiff must incur physi-cal harm to self or property by use or consumption of the product.

5. The defective condition must be the proximate cause of the injury or damage.

6. The goods must not have been substantially changed from the time they were sold to the time the injury was sustained.

Manufacturers and sellers of goods can be held liable to consumers, us-ers, and bystanders for physical harm or property damage that is caused by the goods they sell. This is called product liability and it encompases the contract theory of warranty and the tort theories of “negligence” and

strict liability.

Thus, a manufacturer of a product must exercise due care to make a product safe to be used as intended. Due care must be exercised in design-ing the product, selecting the materi-als, using the appropriate production processes, assembling and testing the product, and placing adequate warn-ings on the label(s) informing the user of the dangers of which an ordinary person might not be aware. The duty of care extends to the inspection and testing of purchased components used in the final product. The failure to exercise due care is negligence. Simply stated, a manufacturer is liable for its failure to exercise due care to any per-son who sustains an injury caused by a negligently made (defective) product.

Before any court can hear a case, it must have jurisdiction, the power to hear and decide the case. Without jurisdiction, a court cannot exercise any authority in the case. Therefore, in order for a court to exercise valid au-thority, that court must have jurisdic-tion over the person or entity against whom the lawsuit is brought or the property involved in the suit and the subject matter of the case.

Let’s turn our attention to the specific situation of a company that manufac-tures and packages a product for retail sale in the United States. The supply chain consists of the manufacturer, the wholesaler and the retailer who, be-ing the last entity in the supply chain, sells it to the consumer. Let’s assume that there is an inherent flaw in the design of the product. The product is sold through the supply chain to the consumer and the consumer suffers an injury. The consumer (the plaintiff) brings suit against everyone in the supply chain (the retailer, the whole-saler, and the manufacturer), holding each of them responsible under the theory of strict liability. Consider the positions of the parties in the supply chain. The wholesaler and the retailer did not alter the product or the pack-aging at all. They merely took delivery and resold the product to the next entity in the channel, yet they bear the full legal responsibility for the defect,

the same as if they had manufactured the product themselves. How do they minimize their risk under these cir-cumstances? When the manufacturer of the product obtains liability insur-ance, their policy typically includes an endorsement known as “Broad Form Vendors” coverage. This endorsement provides coverage for the manufac-turer’s vendors for liability arising from defective products. The manufacturer provides certificates of liability to their vendors listing them as additional insureds on their policies. In certain industries this Broad Form Vendors endorsement is essential in allowing the wholesalers and retailers to obtain reasonably priced insurance.

Now let’s apply these legal concepts to the same situation, with the excep-tion that the product is manufactured in China and sold in the United States. The astute reader will immediately grasp the fact that the problem is one of jurisdiction; a United States court has no authority over a manufacturer in China. However, the US court does have authority over the importer who is typically acting as the wholesaler, re-tailer or both. Since insurance compa-nies know this, they classify and price the policies of companies that are importing goods from China the same as if they were being manufactured in the US.

About the AuthorWilliam Hughes

William Hughes is a Certified Insurance Counselor (CIC), a Certified Risk Manager (CRM) and a principal in Hughes Commercial Insurance Services, LLC

He can be reached via email atInfo@HughesRisk.com

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ForÊmoreÊinformationÊonÊwhatÊSRIÊcanÊdoÊforÊyou,ÊtoÊarrangeÊaÊfactoryÊtour,ÊorÊforÊbidsÊonÊcurrentÊorÊfutureÊproducts,ÊpleasecontactÊusÊatÊ801.542.9458ÊorÊemailÊusÊatÊdavid@silkroadintl.net.ÊWe'dÊloveÊtoÊhearÊfromÊyou!ÊForÊmoreÊcontactÊinformation,includingÊoverseasÊoffices,ÊclickÊhere.

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SRIÊBlogÊStayÊupÊtoÊdateÊwithÊtheÊcurrentÊChinesebusinessÊclimateÊandÊwhatÊitÊmeansÊforyourÊmanufacturing.

ProjectÊShowroomÊViewÊourÊgalleryÊofÊproductsÊthatÊSRIÊhasÊsourcedÊforÊotherclients.

AboutÊBusinessÊinÊAsiaÊReadÊtheÊlatestÊarticleÊinÊourÊseriesÊonmanufacturingÊandÊdoingÊbusinessÊinAsia:Ê"QualifyingÊYourÊOverseasÊSupplier."

TheÊSRIÊAdvantageÊExpandÊyourÊnetwork,ÊimproveÊcommunication,ÊandÊsavemoney.ÊLearnÊmoreÊaboutÊtheÊadvantagesÊusingÊSRIÊbringstoÊyourÊbusiness.

TheÊSRIÊProcessÊLearnÊaboutÊtheÊthreeÊprimaryÊstepsÊinÊtakingÊyourÊproductfromÊdesignÊtoÊmarket:Êdevelopment,Êproduction,Êanddelivery.

“Ten Best” China Business Blogs: www.silkroadintl.net/blog

QUALITY CONTROL LOGISTICS PROJECT MANAGEMENT LEGAL FINANCE

PRO

JECT

MAN

AGEM

ENT

In just over a decade, sourcing from China has become a fundamental com-ponent of the business model of many global companies. Not a trend, sourc-ing is now an indispensable necessity. Still, smaller and medium-sized com-panies are only now discovering China as a potential sourcing destination. In Latin America specifically, sourcing is an almost obligatory business con-versation that, unfortunately, coexists with a lack of information and focus necessary to undertake a successful project. One example of this I com-monly hear in Mexico: import Chinese-manufactured mobile phones and develop a proprietary brand.

What is the information necessary to appropriately focus a project like this? Businessmen need to take into account that building a brand requires a significant investment from both the brand-holder and the manufacturer. The manufacturer will need to devel-op its capabilities to produce propri-etary models. At the bare minimum, the manufacturer will have to buy molds and parts, as well as allocate production to assemble said phone. The brand-holder, before importing the phones at all, has to obtain reg-istration and certification(s) from the competent authorities. Beyond these fixed project costs, the brand-holder will have to calculate the variable cost breakeven point: how many mobiles

should be sold to reach profitability?

Perhaps mobile phone brand devel-opment isn’t a project for everyone, (certainly a big reason why only big multinational dare to do this) however, China’s manufacturing base allows am-ple flexibility in establishing a sourcing project’s focus. Do you want to source machinery, raw materials, parts, or fin-ished goods? Can your business model withstand long-distance transporta-tion? Are there other countries where you can purchase the same products?

Even more, flexibility can be main-tained paying attention to potential obstacles of the project:

• Who will lead the project? Sourcing in China requires particular knowl-edge-building, it’s important to assign one person of your team, preferably specialized in trade and in your core business, to implement the project. He or she should also be up to date on the industry and make frequent trips to China to find suppliers, attend trade shows, and establish new business op-portunities.

• Who will implement the project’s op-eration? Due to China’s boom in sourc-ing, there are many companies that offer complete packages, including supplier search, negotiation, purchas-ing, logistics, and customs clearance.

• How vulnerable is the supply chain?

For some products such as automotive parts, your supplier will be the end of a long chain of intermediary suppliers. If one of the suppliers falls behind, your delivery time might be vulnerable.

• What about import taxes and local regulations? Due to restrictions that have been imposed on Chinese im-ports in many countries, sometimes taxes and local regulations play a key role while choosing the products you plan to purchase in China. Some products should be half-assembled to receive some tax benefits, for example motorbikes and textile industry im-ports.

Identifying and answering the above questions before you start sourcing from China is essential. These ques-tions are just a few of many that will need to be discovered and answered to keep your project moving forward (remember you lose precious time and money with every pause in your proj-ect). While a bit daunting, just know that the answers to your questions are there for you. Talk to fellow buy-ers importing similar products. Rules, regulations, and other pertinent infor-mation are there for you on the inter-net. The important thing is to take the time to be as prepared as possible… and still have the understanding that DESPITE your preparations, there will be problems.

We at China Latin Diaries wish you a successful sourcing experience in China!

ACHIEVING FOCUS WHILE SOURCING IN CHINA

MANAGEMENT, PROBLEM SOLVING

By Susana Muñoz China Latin Diaries (www.chinalatindiaries.com)

Having the right management in China can make your sourcing more successful.

About the AuthorSusana Muñoz is a Mexican cultural anthropologist with a master’s de-gree in Sociology at Sichuan Univer-sity. She contributes regularly to the blog of China Latin Diaries at www.ChinaLatinDiaries.com

QUALITY CONTROL LOGISTICS PROJECT MANAGEMENT LEGAL FINANCE

LEG

AL

China’s Legal System Part I: Who are you dealing with?

JURISDICTION

By Lynn Li, Partner JunZeJun Law Offices

As more and more companies around the world look to engage in the ever-growing economy in China, what will they do to cope with the corporate world in China? This article tries to give you some clues to the legal aspects of this engagement.

A company from Dubai (“Dubai Co.”) got to know a trading company with an address in Shenzhen, China (“Shen-zhen Co.”) through an online sup-plier directory and intended to buy a batch of goods from the Shenzhen Co. Before placing an order, the Dubai Co. browsed Shenzhen Co.’s website, visited its office in person, and took photos at its reception area for re-cord. Thereafter, both parties entered into a formal purchase order (“PO”), on which the authorized person of Shenzhen Co. signed his name. After the order was placed, Shenzhen Co. posted some samples according to the PO and the samples passed the Dubai Co.’s examination. Then, the Dubai Co. transferred a deposit to the Shenzhen Co.’s bank account set up at HSBC in Hong Kong. Prior to the delivery of the goods, Dubai Co. made the pay-ment for goods in full; however, upon receipt of the goods, the Dubai Co. discovered that all those goods were defective products. The Dubai Co. at-tempted negotiations with Shenzhen Co. many times without getting any positive results, so they were referred to a lawyer for assistance.

Lawyer’s findings:

The lawyer reviewed the invoice, PO, photographs; website and other materials supplied by the Dubai Co.., checked through the corporate information website of the local gov-ernment, and conducted a site inves-tigation. It was discovered that this so-called Shenzhen Co. was not legally registered in Shenzhen, and its office was rented only for temporary use and ultimately had been left unused and empty. From the HSBC bank account of Shenzhen Co., the lawyer inferred that the Shenzhen Co. should be a company registered in Hong Kong. Pursuant to Chinese corporate law, a Hong Kong company is not a Chinese company, and therefore should be considered as a “foreign company.” A Chinese lawyer is unqualified to repre-sent Dubai Co. to file a lawsuit in Hong Kong, and it is also meaningless to file a lawsuit against a foreign company without any address or property with-in the territory of China. This Dubai Co. only had the following options: (1.) Employ a Hong Kong lawyer to file a lawsuit against said Hong Kong com-

pany in Hong Kong. The Hong Kong lawyer may search for the address and information of the directors of said company through the Corporate Reg-ister Office of Hong Kong. However, since it is very easy to register a com-pany in Hong Kong, and it is very com-mon that a Hong Kong company has no assets, filing a lawsuit is very likely to be nothing more than just a waste of money. (2.) Report the case to the Hong Kong or Chinese police as a sus-pected fraud case. However the place where the criminal is located (Hong Kong), the place where the crime took place (Mainland China) and the place where the result of the criminal act was found (Dubai, where the goods were inspected and found to be defec-tive goods) are in three different coun-tries and jurisdictions. It is difficult to both solve the case and to conduct the prosecution, and, generally, the police will not invest a large amount of police force in this kind of cases. (3.) Employ a private investigation company to seek recovery through irregular ways. This way is gradually becoming known to people with the recent growth of pri-vate detective business in China. The detective business itself is in the grey zone of law, however, and the costs alone of such a defective company are usually quite high.

Tips:

To avoid being a victim in a similar case, it is necessary to learn and verify the real identity of a Chinese company or an alleged Chinese company before entering into any transactions with such a company.

Knowing the proper legal jurisdiction is crucial

QUALITY CONTROL LOGISTICS PROJECT MANAGEMENT LEGAL FINANCE

1. In the mainland of China, all com-panies must register with the govern-ment and obtain relevant certificates and documents such as the business license before being permitted to do any legal business operations. Before entering into any contractor Purchase Order with a Chinese company, you should first request the Chinese com-pany provide a copy of its business license, which should be written in Chinese and bear the Chinese name of the company and the name of its legal representative. In China, a company is only required to register a Chinese name as its legal company name and is not required to register any English name. Therefore, once any litigation happens, it is not possible to directly identify any company by its English name only. It is therefore very essential to have the Chinese name of the com-pany by obtaining the business license of this Chinese company, and, if condi-tions permit, the foreign trader may entrust a Chinese lawyer to investigate the validity and credibility of a Chinese company based on the content on its business license (at the cost of ap-proximately US$500-$1,000).

2. In Mainland China, the importance of the company seal is so high that many other countries cannot compare. The company seals must be filed with the public security organ. A document on which a company seal is affixed is deemed as a legal document ap-proved by that company and generally will bind the company to undertake legal responsibilities for the content of such a document without the proof of any other evidence. In China, a per-son’s signature does not have a strong effect, and sometimes the signature of a director or even the legal representa-tive of a company does not necessarily have a binding effect on the company without the company seal affixed. Therefore, you should first ensure that the contract or PO has both the Chinese name and English name of the Chinese company, and at the same time, the contract or PO bears the af-fixture of the company seal, together with the signature of the authorized representative. There are two types of company seals in China: the company seal of a domestic Chinese company is a circle, in which the Chinese name of

the company and a five-pointed star co-exist, while the company seal of a foreign-invested Chinese company is an ellipse, in which the Chinese name of the company exists (in some cases, together with its English name), with-out any five-pointed star.

3. In Hong Kong, a company from the mainland of China is not permit-ted to open a general bank account with any Hong Kong bank. Therefore, if you discover on the contract or PO that a Chinese company provides a bank account at the HSBC in Hong Kong for the purpose of receiving payment, while its address is in the mainland of China, in most cases such a company is a Hong Kong company instead of a Chinese company (please note that some investors may set up a Hong Kong company and a Chinese company separately using the same English name, but these are still two different companies). In such a case, you must insist on obtaining the Chi-nese name and business license of the Chinese company, and make sure the company seal of the Chinese company is affixed to the contract/PO and that the Chinese name on the company seal is consistent with the name of the party concerned in the contract. If the above is provided, then the Hong Kong company will be considered as a party who receives payment on behalf of the Chinese company only, and all contractual obligations still rests with the Chinese company, therefore when any disputes arise, you may now sue the Chinese company in China.

About the Author Lynn Li JunZeJun

Lynn Li is a partner in the JunZeJun law offices which are based in Beijing. Lynn Li helps manage the Shenzhen branch of JunZeJun specializing in litigation and IP protection for foreign buyers. Educated in London, England, Lynn Li has been practicing law for over twenty years helping foreign buyers successfully gain damages from suppliers in China.

For any legal inquires please contact Lynn Li at- lynn.li@junzejun.com

The China Sourcing Information Center is a buyers support net-work. As such, the CSIC is seeking new writers for our publication.

Help support our growing net-work of buyers helping buyers by sharing your experiences (suc-cessful or not) with our reader-ship.

To learn more about writing for the China Sourcing Information Center and its online magazine the “China Sourcer” please e-mail exd@chinasourcinginfo.org.

Thank you for your support!

QUALITY CONTROL LOGISTICS PROJECT MANAGEMENT LEGAL FINANCE

FIN

ANCE

Years ago, when Murphy’s Law calen-dars were all the rage (and yes, I am that old), my father submitted and had published two such laws; Kelly’s 1st & 2nd Laws of Aerial Navigation (remem-ber this is from the 1970s, so paper maps were the standard – no GPS).

1. Your destination will always be on the other side of the map.

2. All pertinent information will be in the crease of the map, which will be torn.

Recent events put me in mind to pos-tulate laws of my own, Kelly’s 1st & 2nd Laws of China Sourcing.

1. Every project will suffer de-lays.

2. The primary source of project delays is the customer.

Now, before the hate mail floods in from all sources let me clarify. China is inexpensive, but it is NOT fast. There will always be delays in any project. Virtually every decision cycle takes at least 24 hours, often much longer. When a client comes to us, I always try to manage expectations. Often we encourage or even aid a customer to establish or maintain a domestic sup-ply chain while setting up the China connection. The long term health of the client is the goal for all of us, and we recognize that doing business in a foreign country is never easy or quick. I have had this experience in the Czech Republic and Taiwan before entering Mainland China, so this is not a slam at the Chinese. It is just indicative of doing business across vast distances with a language barrier thrown in for fun, and is one of the great arguments for domestic production.

Nor is it necessarily a slam at the cus-

tomer, just recognition of reality. Now, for some customers reading this, they will probably want to throttle me, because in their particular cases, the Chinese suppliers ARE the source of delays. To you who fall into this cat-egory, you know who you are and I am NOT referring to you. Don’t take this article the wrong way. Our team is hard at work steering the suppliers back on schedule and we will succeed.

I said the “primary” source, as defined by Merriam-Webster as, “first in order of time or development“, not the only source. And for the majority of proj-ects, this is true.

This in no way means the customers are wrong per se. There are often very good reasons for delay. But we have a number of projects in our history that arrived in the market months and sometimes years “past schedule” be-cause of some very common reasons. I list them here as a teaching exer-cise, so that if you are thinking about launching a project in China, I encour-age you to learn from those that came before you.

1. Incomplete Design Databases – this is the A-#1, super-duper grand-daddy of all causes of delays. As I men-tioned in some of my blog writings, you really, really, REALLY need to have all the elements of the design finalized before going to production. Leaving even the smallest element of the de-sign open to interpretation will lead to the supplier interpreting it in the way exactly opposite from what you want-ed. Remember Murphy’s Law, “If it can go wrong it will”. Third parties work very hard to try and search for these errors and omissions, but are not the project designer. Some of the people I work with at PassageMaker are en-

gineers, and many of us have years of manufacturing experience, but I stress that we are NOT getting paid to do the design work. For that we have a very competent group of Endorsed Service Providers that we recommend at the China Sourcing Information Center, should the client choose to utilize them. One of the reasons we began building our CSIC network was not so much the clients who showed up with “lipstick on a cocktail napkin” draw-ings, but those who came with “data-bases” they’d spent thousands of dol-lars on that…weren’t. Oh, there were a bunch of drawings, but it is amazing how many folks promote themselves as product designers who don’t even know how to do a proper mechanical drawing. 3D CAD packages with no 2D drawings and vice versa are common. I’ve seen drawings with no material specs, no finish specs, no tolerances, and no scale. In one case after signing a Non-Disclosure Agreement (NDA), the client gave us a drawing of a circle with no scale or dimensions at all. I asked if it was a drawing of the moon to illustrate the point. I advised that

Kelly’s 1st & 2nd Laws of China Sourcing From Whit’s China Business Blog-www.psschina.com

TROUBLESHOOTING

By Whit Kelly, Global Director of Sales, PassageMaker

Kelly’s 1st and 2nd Laws of China Sourcing:

1. Every Project will suffer delays

2. The primary source of project delays is the customer

QUALITY CONTROL LOGISTICS PROJECT MANAGEMENT LEGAL FINANCE

they get a refund from the “engineer” they paid to produce that useless document.

2. Payment – As I’ve written before China is pretty close to a cash economy unless you are a buyer for a Fortune 500 company. All Purchase Orders (POs) will require a deposit, in most cases because the manufacturer is going to use that money to pay cash for the raw materials. Tooling is typically 30% At Time of Order (ATO), 40% at 1st article and 30% at final ap-proval, before delivery. Production is most often 50% ATO and 50% At Time of Shipment (ATS), which means in practice, 100% is due before the product leaves the factory. All these terms are clearly communicated early in the project, but at least 80% of the time, there are delays from clients not paying in a timely fashion. We advise the client to transfer the entire PO amount to an escrow account at the beginning so funds are immediately available to disburse when milestones are met. This rarely happens.

3. The uncommunicative cli-ent – it is not uncommon for projects to get caught in the doldrums and go nowhere for days, weeks, even months because the client is AWOL. It is very, very common to have clients play “hurry up and wait”. I’ve had pan-icked project managers contact me frantic because they haven’t gotten a client response to a critical question for over a week, only to find out that the client went on vacation without telling anyone. The delays of course are somehow our fault.

4. The client who’s in a hurry – while this might seem to be the right kind of client to have, the client who is in a hurry often places speed over accuracy. They want to cut corners, skip prototypes, skip writing a Prod-uct Quality Manual (PQM) with us, not bothering to proof-read the PQM, etc. Sometimes this works out, but not often. More commonly when you deviate from the normal project flow, you end up causing more delays.

Chinese vendors screw up all the time, otherwise we would have a lot

less work to do, but it is not all the vendors’ fault. In short, the customer is NOT always right.

About the AuthorWhitwell C. KellyDirector of Global Sales for PassageMaker

Whit has over 20 years of experience in quality and lead-time intensive markets like the North American automotive industry. Whit has been working in Asia since 1994, including periods living in Singapore and Taiwan. He makes regular trips to the People’s Republic of China. Whit now heads PassageMaker North America (PMNA) and is responsible for PassageMaker’s global sales. He speaks Mandarin and is based in Salem, VA, USA. Whit’s Business Blog is featured at http://psschina.com/category/whits-china-business-blog/

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the world

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► Obtain research & advice ► Grow strategically ► Set up China & HK operations ► Recruit talent ► Trade products & services ► Outsource accounting www.fiducia-china.com

We keep up with the fast pace in China

Tradeof theTerms

ATOAt time of Order.

A condition usually spelled out in a PO, MOU or other contract/ that requires a specific item must be provided or completed at the time the order is commissioned.

PQMProduct Quality Manual.

A list of specific product standards that must be met for the product to be “approved.” Product spec’s, design details, testing or material standards, functionality and any other product requirements should be included in the document prior to the start of produc-tion.

FCFixed Costs.

Fixed Costs-Periodic cost(s) that remain(s) (more or less) unchanged irrespective of the output level or sales revenue of a firm, such as depreciation, insurance, interest, rent, salaries, and wages.

CAD FilesComputer Assisted Drawing/Drafting.

2D and 3D drawings for design, draft-ing, documentation and manufacturing processes.

VCVariable Costs.

Periodic cost that varies in step with the output or the sales revenue of a firm. These include raw material, energy us-age, labor (wages), distribution costs, etc. This difference affects the financial structure of the firm as well as its pric-ing and profits, The breakeven point in such firms (in comparison with high fixed cost firms) is typically at a much lower level of output, but their marginal profit (rate of contribution) is also much lower.

ATsAt Time of Shipping.

A condition usually spelled out in a PO, MOU or other contract/ that requires a specific item must be provided or com-pleted at the time the order is shipping from the supplier/manufacturer.

BPBreakeven Point.

Point in time (or in number of units sold) when forecasted revenue exactly equals the estimated total costs; where loss ends and profit begins to accu-mulate. This is the point at which a business, product, or project becomes financially viable.

P

TDTrade dress.

The non-functional physical detail and design of a product or its packag-ing, which indicates or identifies the product’s source and distinguishes it from the products of others. A trade dress may acquire legal exclusivity as a type of trademark.

C

B

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We’d love to hear your stories or see your pictures! Please feel free to send any stories/images to the Executive Director and Editor of the “China Sourcer” at-exd@chinasourcinginfo.org

Tradeshow CalendarFor a complete list of all the tradeshows in the greater China region please visit Global Sources Calendar

All Shows highlighted in Red will be attended by CSIC. Our booth location will be listed in the show guide under our corporate sponsor PassageMaker

January 2011Fri 1

Sat 2

Sun 3

Mon 4

Tue 5

Wed 6

Thu 7

Fri 8

Sat 9

Sun 10

Mon 11

Tue 12 Global Sources, Shanghai, China Shanghai New International Expo CentreCSIC’s Mike Bellamy in attendance Product list : click here Booth #1K03

Wed 13

Thu 14

Fri 15

Sat 16

Sun 17

Mon 18

Tue 19

Wed 20

Thu 21

Fri 22

Sat 23

Sun 24

Mon 25

Tue 26

Wed 27

Thu 28

Fri 29

Sat 30

Sun 31

Join CSIC’s Mike Bellamy as he hosts Global Sources’ New Buyers Conference: “How to source from China Seminar Series”

February 2011Thu 1 Spring Festival Holiday

Fri 2

Sat 3

Sun 4

Mon 5

Tue 6

Wed 7

Thu 8

Fri 9

Sat 10

Sun 11

Mon 12

Tue 13

Wed 14

Thu 15

Fri 16

Sat 17 China Fish 2011 Weihai New China International Exhibition Center Products: Fishing

Sun 18

Mon 19

Tue 20

Wed 21

Thu 22 SNEC 2011 PV Power Expo & Confer-ence ShanghaiShanghai New International Expo Center Products: Production equipment solar cells/panels

Fri 23

Sat 24

Sun 25 IIC-China ShenzhenShenzhen Convention and Exhibition Center To see the product click hereMon 26

Tue 27

Wed 28

There are unfortunately times when contracts, for whatever reason, need to be voided. The problem is when can contracts legally be void-ed? There are specific circumstances when this indeed can be done. But to make it work, you have to meet specific legal criteria (i.e. when they are ACTUALLY voidable).

There are three situations in which you have the option of voiding a contract in China:

• A contract made by a “significant misconception” – This one is tough, because there are not really enough cases on the books in China to even attempt to take a guess at what “significant” implies. Tentatively, if you are able to prove that in some aspect of the contract, one of the parties made significantly mislead-ing promises that are not in sync with industry standards, you MAY meet this standard.

• Contracts that are “significantly unfair” – This has more to do with contracts in which some aspect of the agreement has changed significantly from the time the con-tract began to be effective to the time of per-formance by one of the parties.

• A contract signed “under duress” – While this seems like a straight forward idea, no one can somehow force you to sign a contract and force you to perform it, in reality duress can be difficult to prove.

Basically, proving legal void ability will come down to three things, how well you know your industry, what the specific standards are and how influential your lawyer can be in arguing that you were mislead, tricked or coerced into signing a contract.

The tricky part about these types of contracts is that while they are indeed voidable, they are still valid until or unless the party that is getting the short end of the stick exercises their right to have the contract voided. These contracts are not inherently unenforceable. Chinese courts have treated many cases in which a contract has been created by fraud as a voidable contract. This means that unless you catch the other party to your contract cheating and blow the whistle on them, the contract is still perfectly legal.

While this may seem to tilt the field of play in favor of those who will steal cookies all day long and just take their losses when the one time they get caught with their hand in the jar, the Chinese courts have actually rationalized this position by pointing out that it may be in the interest of the party being misled to continue to enforce the contract.

While there may be some hypothetical situa-tions in which the party being wronged would benefit if the contract were to be enforced, it seems to me that more often than not, these “significant misconceptions” will not be under-stood by the party being wronged. The other point of view from the courts is the recognition of the intent of the parties when they signed the original contract, they decided, by free will, to do business with each other in the first place and it should be up to them whether or not they continue to uphold the contract.

The most important point to take from this discussion is that, if you find yourself being deceived in a contract, it is up to you to go to the court and have the contract declared void.

A similar issue is the right to the rescission of a contract. This right deals with rescission as well as the modification of a contract. In Chinese courts, modification is almost universally pre-ferred to rescission. While modification of the contract is preferred, it is usually too difficult to try to decide what the true intent of both par-ties was had they been honest when putting together the original contract.

The statue of limitations for rescinding a contract is one year from the point one of the parties ought to have known they had cause to rescind the contract. Also, your right to rescind a contract may be waived through an explicit declaration or through your actions, if you con-tinue to perform a contract after the evidence that you had cause to rescind was uncovered.

There are also many possible legal consequenc-es to voiding contract. If a contract is declared void, (meaning it does not meet the minimum requirements of a contract) the contract will not have the intended outcome. If part of a contract is void (this is known as severance) you can basi-cally cut that part out of the contract without

damaging other parts of the contract that are still valid. Also, the dispute resolution clauses of a contract may still be valid as well, determining arbitration, mediation or conciliation and even the choice of applicable law. Just because the terms of the contract are void, does not mean that the contract disappears, there may still be very real responsibilities that can be costly.

Tradeof the

ToolsVoidable ContractsBy Matt Kowalak, Southern Perspective SZ

About the AuthorMatt KowalakSouthern Perspective SZ

Matt Kowalak has worked in manufacturing related positions in Shenzhen for the last 6 years. He studied Chinese at Shenzhen University and is currently an LLM student at The Chinese University of Hong Kong.

Matt and his team at Southern Perspective SZ are focused on staying on the cutting edge of Chinese Business Law. They help their clients to understand potential problems that may arise in the course of doing business in China. Whether you’re manufacturing, sourcing from existing suppliers, or looking to sell into the Chinese market, Southern Perspective SZ can help. For further business questions or consulting, Matt can be reached at matt@southernperspectivesz.com or through www.southernperspectivesz.com

andTeaming up to offer free conferences on China sourcing topics in Hong Kong, Shanghai, Dubai,

Mumbai, Johannesburg and beyond in 2011

CSIC advisory board members hosting recent conferences in Hong Kong

Next stop on the global seminar series:

April 12-15; 20-23; 27-30 (Booth #s TBD)

Hong Kong- Asia World Expo

Contact Exd@ChinaSourcingInfo.org to book seats for an individual or group.

Buying from China: What new buyers need to know This one-hour introductory level course on sourcing includes modules such as: • Managing expectations: Sourcing opportunities and common pitfalls • Quality Control Fundamentals • Shipping & Logistics Overview • Supplier Payments Whether you’re a beginner or veteran buyer who wants a fresh perspective on the subject, these seminars will give you valuable tips on sourcing more productively and profitably. Gain information that will continue to pay off for years to come.

Negotiation tactics for successful purchase contracts/orders This one-hour intermediate-level course will discuss com-mon pitfalls and strategies in supplier evaluation and purchase order agreements. Outline 1. Conducting RFQ (Request for Quotation) 2. Face-to-Face Negotiations 3. Critical Contractual Items • Price • Quality • Lead Times • Payment terms • Intellectual Property Valuable “tools of the trade” such as check lists and templates used by industry experts will be provided.

About the key note speaker: Mike BellamyMike serves as the Chair of the CSIC advisory panel and is the founder of PassageMaker.Before organizing PassageMaker, Mike worked with The Brock Group, an international trade and investment con-sulting firm managed by President Reagan’s US Trade Representative Bill Brock in Washington DC. Mike moved to Asia in 1994 and has structured sourcing investments in over 150 production classifications for US and European clients during his time in China. He received his double degrees in Diplomacy and Economics in Washington DC and later went on to gain an International MBA from the University of South Carolina which included a year of full-time graduate level courses at the Harbin Institute of Technology and University of International Business and Economics in Beijing. Recognized as expert on China sourcing, Mike has been a featured presenter for a number of high profile seminars and trade shows including Global Sources Asia Expo HK, Global Sources Dubai, Boat Tech China, Rotary Foundation, US Chamber of Commerce, British Chamber of Commerce and State Bar of California among others. Before building a career in China, Mike spent 2 years as a Rotary Foundation Ambassadorial Scholar studying Japanese Factory Management in Tokyo and Osaka. Later he studied the Chinese language in Manchuria and Beijing. Mike reads, writes and speaks Chinese. Based in Shenzhen with his wife and daughter.

In 1979 premier Deng Xiaoping broke from his predecessors and began the rapid opening of China to the West (and its money, technology, knowledge). Shen-zhen is his crowning achievement and a continuously growing reminder of Deng’s smart decision. In 1979, Shenzhen was just a small fishing village. As 2011 begins, Shenzhen is now the fourth largest city in China (in terms of population, and GDP). For those buyers doing business in China, there may be no more important city to them, than Shenzhen.

Shenzhen is one of Deng’s five Special Economic Zones (SEZs) that he first tested capitalist market methods under “Chinese Socialist Management”. Shenzhen was specifically targeted and the first to be tested due to its close proximity to Hong Kong- which in 1979 was a booming Brit-ish Colony. With this newly given open-ness, Shenzhen went from being a village of around 50,000 to a bustling metropolis with population estimates ranging any-where from ten to fifteen million!

Shenzhen is perfectly situated at the base of the Pearl River Delta in Guangdong province. By being allowed better access to cheap labor, Hong Kong’s influence in the city is found in all aspects of the city (transport-see Transportation below, busi-ness practices, fashion, and Cantonese cul-ture). To the North Shenzhen is neighbor to Dongguan and to the provincial capital Guangzhou just an hour train ride away.

Guangdong province is known as the manufacturing capital of the world. Shenzhen is the manufacturing capital of Guangzhou. Due to its proximity both Hong Kong and Guangzhou, Shenzhen is in the unique position of serving both the import and export market (primarily the

latter of the two currently). With its unique positioning, Shenzhen is home to some of China’s largest companies including Ten-cent (creator of the largest messenger ser-vice QQ). The city is comprised of six main districts (Luohu, Futian, Nanshan, Bao’An, Longgong, and Yantian) with each serving a different purpose to the city.

• Luohu- Financial sector of Shenzhen is housed here.

• Futian- The city government is located in Futian.

• Nanshan- This district plays host to Shen-zhen’s advanced technology companies.

• Bao’An & Longgong- most of the heavy manufacturing is completed in these dis-tricts.

• Yantian-with a natural deep water port, Yantian is the main logistics center, and the 4th busiest port in China.

Transportation

Shenzhen was the 5th city in China to open a subway system. Currently there are 3 lines open (all are currently being extended, with other lines co-currently be-ing constructed. Nearly 175km of subway tracks are to open in Shenzhen by the time the University games come to the city in the summer of 2011. With the new lines being constructed, all districts of the city will be connected. Plans also call for the subway system to nearly double in size from the 2011 totals by 2020. Buses are still the main form of transportation along with taxis while the city improves the subway system. Shenzhen also has one of China’s busiest airports, which offers international flights to several Asian countries.

With its proximity to Hong Kong, many

City DataArea Total 2,050 sq km (790 sq mi)

Population Total 9,084,132 Population Density- 4,431.3/sq km (11,499/sq mi)

Useful linksWikipedia

Metro Stations

Echina Cities

Currencies

Shenzhen Shenzhen

buyers opt to enter China through Shen-zhen. Along with Hong Kong’s MTR system, several different bus and van companies offer transportation services to Shenzhen. Tickets can range anywhere from 150-200HKD (140-180RMB)

Economic Prowess

Guangdong province has a GDP higher than that of Saudi Arabia. There is no doubt about Shenzhen’s place in China’s economy as the city produces the 4th largest GDP (in 2009 recorded at 820.1 billion Yuan). Located within the district of Yantian, Shenzhen also has Guangdong’s busiest port and one of the busiest not only in China but in the world (per containers shipped).

Beautiful skyline at evening, Shenzhen, China

The Last Page *True Stories and images of humor/horror from the front lines of China Sourcing

*The China Sourcing Information Center (CSIC) is an educational service designed to help both the experi-enced sourcer doing business in China, and a buyer who is just beginning to source their project from China for the first time. Most of us who have been in China long have seen or heard both harrowing and hillarious stories/instances while doing business here. “The Last Page” was created for that purpose- to allow our read-ers to share their stories to fellow readers/sourcers. We here at CSIC hope to collect the very best (and worst) stories and images of triumps and failures, humor or horror for the world to see. We at CSIC have hundreds of stories to share ourselves, but we really look forward to contributions from fellow sourcers. Enjoy!

This service announcement was found on the tables of one of Shenzhen’s local Cold-stone ice cream eateries. It is always good to have something to read and it’s ALWAYS

important to be safe when eating frozen foods. It certainly leads one to wonder though.

Coldstone- Great at ice cream, but great at fire prevention hints?

ensure the safety of life

ClassifiedsChina-Based Engineering Making a trip to China? Free Ask the Experts Service

Take a look at Venture Tech

www.VentureTech.info

I can help with things like interpretation and trip

planning. Based in Shenzhen but willing to travel.

References available.

ChinaHelp@yahoo.com

www.chinasourcinginfo.org/contact-us/qa-forum/

is where to go

English Speaking Lawyers Outsourced Accounting Need Representation in China?

Graphics Design

- protect your IP

- review contracts

- take suppliers to court if they have done you wrong

http://www.junzejun.com/en/lawyer.asp?id=57

Keep you trading accounts organized and in compli-

ance with local authorities!

Fiducia Management Consultants

www.fiducia-china.com

Sourcing Agents are available to

help find and manage vendors.

www.psschina.com

www.silkroadintl.net

American Freelancer

in

Shenzhen

Curt@kirkhoff.com

Quality Control Tool & Die Stewards Worried your products are being knocked off and on display at a China trade show?

Product Inspection and Factory Auditing from

268 USD

www.AsiaQualityFocus.com

Available to protect your tools/molds against

improper use by your suppliers.

Avoid back door shipment and loss of IP.

www.psschina.com

I’ll walk the show and look around, even gather evidence for you, saving

you a flight to China. 2400 RMB a day plus travel expenses if out of town.

Most shows can be walked in a day. Recommended by the China Sourc-

ing Information Center.

EyesAndEarsInChina@gmail.com

Business Intelligence, Investigations, and Surveillance

Due Diligence Want to set up an office or factory in China/HK?

Keep an eye on suppliers and competition

www.cbiconsulting.com.cn

Verifying that what the supplier is telling you is

accurate

www.cbiconsulting.com.cn

www. Fiducia-China.com

are the experts

Contact the China Sourcing Information Center to be placed in our Classifieds section visit www.ChinaSourcingInfo.org or e-mail exd@chinasouringinfo.org