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There are 3 options for sourcing in China: you can limit yourself to regular buying trips, set up a company in Mainland China or Hong Kong, or work with a sourcing agent.

2.2.1. Regular buying trips

You can visit Chinese fairs, like the one in Guangzhou and travel the country looking for potential suppliers; you can search online supplier databases (websites where you can find Trade Leads, an e-Catalog and a Company Directory). In any case, visiting your potential suppliers is a must.

• Advantages: no specific set up costs, straightforward, best-suited for sourcing finished products.

• Disadvantages: difficult quality control and assurance, definitely not good for design-specific products.

A good event to check out what consumer goods are available in China is the Chinese Export Commodities Fair in Guangzhou, also called Canton Fair (http://www.cantonfair.org.... or http://guangzhou-cantonfai...), the largest of its kind in China. Held twice a year (in April and October) it attracts hundreds of thousands of business people from over 200 countries. Billions and billions of dollars of business deals are made during this feverish and blatant display of global consumerism.

2.2.2. Setting up a company

You can set up a Trading Company in Hong Kong with a representative office in Mainland China. The rep office is in charge of sourcing and inspection/quality control, and is closest to the suppliers. The trading company takes care of the contractual relationship with the suppliers, purchasing and shipment coordination (tax advantages, clear import/export procedures).

• Advantages: - Limited investment cost, small setup, an ideal starting point for operations in China);

- Experienced staff in Hong Kong for trading operations;

- Well-developed infrastructure;

- Free currency inflow/outflow;

- Lower risk – easy market exit possible.

• Disadvantages: - You cannot buy/trade directly in China, as rep offices have no trading rights;

- Control issues: special attention is required for coordination and communication.

Theoretically it is possible to establish your own wholly foreign-owned purchasing centre, but the capital requirements are rather high: 30 mio. RMB.

2.2.3. Working with a sourcing agent

In the last few years many sourcing companies have started offering their services to foreign companies wishing to buy products in China. When looking for a reliable sourcing agent, you may want to look at some of the following aspects to determine whether the company you are in contact with is suitable for you:

• Track record: generally speaking, companies who have been around for a few years tend to be those who have proven their quality and trustworthiness. These companies may have started out with one happy client, who then referred them to another client, and so on. Gradually they become more experienced and efficient, and thus more reliable for the purchaser.

• Management: it is our experience that companies with a foreign (European) management tend to be easier and smoother to deal with. Not only does the foreign manager understand your business culture better, but s/he also grew up in the same society and has likely developed the same kind of business ethic. It is important to know that Chinese business ethics are different from European ones, and these differences may lead to costly and painful misunderstandings. Still, many young Chinese business people have become quite accustomed to the Western way of doing business, and you will likely be able to find a Chinese sourcing partner who understands your needs perfectly.

• Specialization: your agent should know the products, the factories, the trends and the individuals behind the factories.

• Transparency: a good sourcing agent is not afraid to work in a very transparent environment where you have full disclosure of OEM and product information. Be wary of agents who want to keep you in the dark.

• Focus: in the past and even now many Chinese-managed sourcing companies said that they can source any product that you need. While this may be okay for finished mass products or if it is a very large sourcing agent who can cover almost every sector, you may prefer to work with a company which works with a limited number of products with suppliers that they've known for a while and trust.

• Quality (control): how important does the sourcing company consider quality control, and what quality control systems do they have in place? While this is difficult to know at first hand, unless you know people who have worked with them before, you may be able to find clues in the way the sourcing company communicates with you; do they seem professional and efficient, do they paint a balanced story of opportunities and risks, etc.?

• Price level: one of our mentors often says – "TINSTAAFL" or "There Is No Such Thing As A Free Lunch". We would therefore suggest that you be weary of companies who offer very low fees or extremely competitive prices that seem too good to be true. The market has become mature enough in order for there to be a proper balance between price and quality. Paying less for a service means that you will get less of a service.

Through our contacts with a wide range of sourcing companies we have come to believe that most of them are capable and reliable as such. The challenge for them and for you is how the production and delivery processes are managed. Later in this report you will find a list of companies and organisations with who we have been in contact. Please note, however, that our offices have never personally done any sourcing business with them, so we cannot give you any guarantees.