The matter of China Sourcing is at present being given little or medium-level priority by many companies. This however is not consistent with the potential which this matter offers with reference to procurement costs and consequently one’s own competitive position. In the near future China will advance to become the procurement market par excellence. Today, it already has a large supply base, which in the next few years will lead to China developing into one of the most aggressive competitors in the world. This will lead to an increase in procurement from China.
However, it is misplaced to rush into the “adventure” of procurement in China. Thorough preparation is necessary to be successful in the Chinese market. Procurement in China does not only offer opportunities but it is afflicted by risks and problems. The focus of this book is directed towards 5 important problem areas: a lack of market transparency, difficulty in establishing contacts, underdeveloped logistics infrastructure, a lack of product quality, unusual negotiating strategies. The reader is made sensitive to these problem areas. At the same time, it provides practical advice to overcome these problems and gives purchasers useful information and hints in practical business situations.
This guide is aimed at purchasing managers in production companies who have not yet had experience of dealing with or in China and who would like to start.
Table of Contents
1 Introduction
1.1 Problems and Objectives
1.2 Structure
2 Procurement Market China
2.1 Basic Information
2.1.1 Geographical Data
2.1.2 Economic Data
2.2 The Significance of China as a Procurement Market
2.3 Procurement Regions
2.3.1 Pearl River Delta
2.3.2 Yangtze River Delta
2.3.3 Beijing-Tainjin Bohai Bay Triangle
2.3.4 North-Eastern Lowlands – Liaoning Region
2.3.5 The Inner Regions
2.4 Chinese Companies
2.4.1 A Division of 6 Classes
2.4.1.1 National Champions
2.4.1.2 Dedicated Exporters
2.4.1.3 Competitive Networks
2.4.1.4 Technology Upstarts
2.4.1.5 Emerging Companies
2.4.1.6 Scrap Companies
2.4.2 Forms of Ownership of Chinese Companies
2.5 Products Suitable for Industrial Procurement in China
3 First Contact to Potential Suppliers
3.1 Possibilities of Contact Initiation
3.1.1 Trade Promotion Office in the Embassies
3.1.2 Chinese Representative Offices in Germany
3.1.3 Chinese National Foreign Trade Companies
3.1.4 Industry and Commercial Companies in China
3.1.5 Fairs
3.1.6 Seminars and Symposiums
3.1.7 International Procurement Offices
3.1.8 Internet
3.1.9 Magazines and Technical Periodicals
3.1.10 Business Partners, Acquaintances and Friends
3.2 Exhibition Market China
3.2.1 Trade Fair Visit within the Context of a Purchasing Strategy in China
3.2.2 Trade Fairs in the Consciousness of Chinese Companies
3.2.3 Trade Fair Industry and Trade Fair Centres
3.2.4 Successful Trade Fair Visit for Purchasers
3.3 Initiating Business – from First Contact to Business Relations
4 Quality Management
4.1 Quality Management in International Procurement
4.2 Quality Consciousness in China
4.2.1 Development of Quality Management in the PR China
4.2.2 Quality Consciousness Today
4.3 Practical Quality Assurance Measures
4.3.1 Supplier Certification
4.3.2 Assessment of the Supplier by Audit
4.3.3 Quality Agreement
4.3.4 Quality Support
5 Transportation Logistics
5.1 Introduction
5.2 Logistics Companies in China
5.3 Traffic Carriers in China
5.3.1 Road Traffic
5.3.2 Rail Traffic
5.3.3 Aviation
5.3.4 Inland Waterway Transportation
5.3.5 Sea-going Vessel Transportation
5.4 Checklist for the Selection of a Logistics Service Provider
6 Chinese Negotiations
6.1 Roots of Chinese Culture
6.2 Basic Values
6.2.1 Personal Connections – Guanxi
6.2.2 Face (Lien and Mien-tzu)
6.2.3 Hierarchy
6.3 Further Important Aspects
6.3.1 Patience
6.3.2 Significance of Business Cards
6.3.3 Different Contractual Understanding
6.3.4 Minutes of Meeting
6.3.5 Translator
6.3.6 Gifts
6.3.7 Business Meals
7 Conclusion
Objectives and Scope
This thesis serves as a comprehensive guide for German production companies aiming to initiate industrial procurement in China. It addresses the challenges of market entry, from identifying reliable suppliers and managing quality standards to navigating cultural differences and logistical hurdles.
- Strategic assessment of Chinese procurement regions and supplier categories.
- Methods for establishing initial business contacts and leveraging trade fairs.
- Implementation of practical quality management and assurance systems.
- Logistical strategies for transporting goods from China to Germany.
- Intercultural guidelines for successful negotiations and business relationships.
Excerpt from the Book
2.4.1.1 National Champions
China’s national champions are using their advantage as domestic leaders to build global brands. After competing for decades with global leaders selling products on their home turf, some Chinese companies decided to concentrate on developing and selling products not just in the domestic market but also overseas. These national champions have tested the waters confidently, because they have successfully kept their multinational rivals at bay at home. But overseas, they do not challenge their larger opponents head on. Instead, they scout for segments that the market leaders have vacated or are not interested in serving because profit margins or volumes are low. They use their experience in adapting technologies and features to meet the price points of cost-conscious buyers to develop products for those segments. Not surprisingly, low manufacturing costs allow these national champions to turn a profit where their rivals cannot.
Haier exemplifies this strategy. By the early 1990s, the company had battled Whirlpool, Electrolux, Siemens, and Matsushita to become the leader in China's market for household appliances. The company manufactures 250 types of refrigerators, air conditioners, dishwashers, and ovens. When it entered the U.S. refrigerator market in 1994, it sidestepped market leaders like GE and Whirlpool. For five years, it focused on selling only compact refrigerators – units smaller than 180 litres – which could be used as mini-bars in hotel rooms or students could squeeze into dorm rooms. The incumbent leaders had dismissed these market segments as peripheral, but they proved to be quite profitable for Haier, which last year had about half of the mini-fridge market.
Chapter Summaries
1 Introduction: Discusses the growing significance of global purchasing for German companies and the increasing importance of China as a sourcing market.
2 Procurement Market China: Provides an overview of economic and geographical data, identifies key procurement regions, and classifies different types of Chinese companies.
3 First Contact to Potential Suppliers: Explains various methods for initiating contact with Chinese suppliers, emphasizing the role of trade fairs and professional networking.
4 Quality Management: Addresses the challenges of ensuring product quality in China and presents practical assurance measures such as audits and quality agreements.
5 Transportation Logistics: Analyzes the infrastructure, logistics service providers, and transport carriers, offering guidance for selecting the right logistics partner.
6 Chinese Negotiations: Explores cultural roots and basic values such as Guanxi and "Face", providing practical advice for conducting successful negotiations.
7 Conclusion: Summarizes the strategic importance of China Sourcing and emphasizes the necessity of thorough preparation to overcome potential risks.
Keywords
Global Sourcing, Procurement, China, Supply Chain, Quality Management, Logistics, Supplier Certification, Negotiations, Guanxi, Business Culture, Trade Fairs, Industrial Procurement, Market Entry, Manufacturing, Export
Frequently Asked Questions
What is the primary focus of this thesis?
This thesis serves as a practical guide for German production companies to navigate industrial procurement in China, covering market regions, supplier types, quality management, logistics, and negotiation strategies.
Which central topics are covered?
The core topics include the identification of suitable procurement regions, classification of Chinese companies, initiation of business contacts, implementation of quality assurance measures, and the logistical challenges of international trade.
What is the main goal of the research?
The goal is to provide an initial general orientation for purchasing employees in German production companies who are looking to start sourcing projects in China and need to overcome hurdles like cultural differences and market opacity.
Which scientific methods are applied?
The thesis utilizes industry studies, expert lectures, and business handbooks to synthesize a practical approach to procurement, supported by real-world examples and case studies (e.g., Sauer-Danfoss, Haier).
What is addressed in the main section?
The main section covers the "where" (regions), "from whom" (supplier classification), "what" (products), and "how" (contact initiation, quality management, logistics, and negotiations) of sourcing in China.
Which keywords best describe this work?
Key terms include Global Sourcing, China, Quality Management, Logistics, Supplier Certification, and Business Negotiations.
Why is direct communication sometimes ineffective in China?
Due to the cultural importance of "Face" and indirect communication, direct refusals or criticisms are avoided; ambiguous responses often indicate a desire to maintain harmony rather than agreement.
What role does Guanxi play in business?
Guanxi refers to complex personal networks and social connections that are vital for getting things done in the Chinese market, often superseding formal organizational affiliations.
How should companies handle contracts in China?
Contracts in China are often viewed as a flexible framework for a relationship rather than a rigid, irrevocable document, and should be managed with mutual consultation and flexibility.
- Quote paper
- Hauke Jensen (Author), 2005, Global Sourcing. Procurement in China, Munich, GRIN Verlag, https://www.grin.com/document/48463
