How to ensure finding high-quality producers or distributors in China

For companies entering China, whether it is sourcing from China or finding distributors in China, there are some important questions one should ask when starting these processes.

We in Norway China Business Hub, as a company helping foreign companies with market access in China, do feel that there are two key areas that one should focus on when entering the Chinese market:

1.Is your company able to reduce risk sufficiently and are you able to ensure that you have good Chinese partners that have responsible business conduct respecting people, society as well as the environment?

2. What steps should your company take to ensure finding high-quality partners, producers or distributors in China?

These issues are crucial, whether you import and export or want to invest in China.

China is a large country with a challenging business environment

As the Chinese economy has been growing, more companies are now seeing new opportunities in China. For example, the middle class in China has grown significantly over many years. It now is the second-largest economy in the world, and the buying power in China has been increasing and will continue to increase in the coming years.

What challenges do companies doing international trade wanting to enter China or target a company in China face? A common mistake that we see are made by many foreign companies who encounter disputes and worse in China when starting doing business there, is that they do not put enough effort into choosing the right business partner or understanding the Chinese business environment. Thus, many companies are making less informed decisions.

In many branches, China has become the world's largest market or business area. When we are looking at China as a country, it is important to remember the size of the market in China. It is difficult to get a full overview of this market.

In addition, there are other factors that should be paid attention to. Like a completely different business culture and the importance of protecting your intellectual property. China has a first-to-file system when it comes to IP that makes it a challenging market to enter. What I here mean by a first-to-file system is that although you own the patent or trademark outside of China, you do not automatically own it in China.

You might, for example, be producing a product in China, and sending it out to a 3rd market. If your Chinese producer applies for the patent or trademark in China, you are breaking the IP laws in China and they have all the rights to sue your company and stop your product from being sent out of China.

The risk of doing business in China is then, of course, much higher if you are dealing with companies that you do not fully understand the background of.

And while you in your country might be able to go through a couple of persons and then have a decent understanding of the background of the company. In a huge country like China, this is difficult or impossible.

The importance of due diligence as a tool

The Chinese government have taken many steps to improve the local laws in China so that they are in accordance with an international business environment. These improvements affect both local and international companies in China.

If you are doing business in China, you should look at doing a background check of Chinese companies as an important tool. You need to fully understand the Chinese company you now are dealing with.

What do we mean by fully understanding a company? It is important to understand the history of the Chinese company, the structure and background, as well as know who the key individuals involved in the company you are negotiating with are.

A proper background check of a Chinese company should include things like:

1. The Chinese company's current main qualification documents.

2. The registration documents of the Chinese company.

3. The company's shareholders.

4. The company's business area, branches, qualification certification documents.

5. Company asset information, i.e. trademark and patent certifications.

6. The company's public hearings, criminal, civil and administrative judgments. The administrative punishment received, including but not limited to matters like taxation, environmental protection, IP problems, foreign exchange, customs, quality inspection, safety supervision, etc. 

#norway #nordics #duediligence #china #export #trademark #ecommerce #business #patent #ip