Cooperate with a Third Party in China

1 avril, 2008

A third party company is an entity that offers a complete package of services to companies or individuals who are not willing to deal directly with the various actors of the Supply Chain. A third party company is therefore used as a relay between your company and your Chinese manufacturers. In most cases, its teams are multi-cultural et are able to insure an efficient combination between a service to client that is adapted to your European needs, and a type of relationship with suppliers that is adapted to the local Chinese environment.

Consider a cooperation with a thrid party company in China

Making the decision to go through a third party company in China which will assist you for the import of your Chinese goods induces that you may add-up quite a number of compromises in your way of doing business, only because this company represents an extra actor in the working chain and in the communication chain that connect you to your suppliers. If you identify well the primary reasons that push you to making such a decision, and then if you really work well on structuring a new smart working organization, you’ll be able to optimize all the synergies that this three sides cooperation could have you benefit from.

Most of companies – maybe such as yours – who decide to call in a thrid party company usually respond to one or several of the following criterias :

- You have (legitimate) lackings in terms of local culture of business and communication “Chinese way”

- Your business is developing rapidly and you need to work with more structured methods and with people who actually know better than you how to deal practically with daily issues

- Your company is developing but you still can’t afford to set up your own company in China (or you are not willing to do so)

- You have already experienced some big wrongs in China but you can’t buy anywhere else for price competition matters

- The number of your orders that need Quality Contros (QC) of the products on the factory site is larger and larger, and QC sessions occur more and more often : it becomes impossible for you to go to China each time.

- Buyers of your company work very well on your strategic items but have a poor control over new items that are not strategic but that you wish to develope : an external assistance will be welcomed

- There are no real buyers in your company : purchases are made by the sales people or the staff in charge of the marketing, but they only have a limited expertise in terms of sourcing and purchasing management

- Buyers from your company have a perfect technical expertise of the products, mais still encounter difficulties when they are required to adapt to sourcing methods and orders follow-up methods that they shall apply in China

- The team of buyers of your company can’t bear anymore the increasing workload they get due to the growing number of orders given to China, and financially speaking, it turned out to be more interesting for your company to externalize the follow-up of some orders by a third party than hiring new buyers to work in your company ‘s workplace.

How to Choose your Third Party Company ?

According to your needs but also according to the way you are agreeing on working and cooperating, several types of third party companies are nowadays on site in China to respond to your demand.

In all cases, one of your criterias of choice will be how many years on site in China have spent the main actors of the third party you wish to cooperate with. You will also prefer a company whose people have high analyzing skills in regards to your needs, and with a great reactivity in regards to your first requests starting from the very first contact. A company that does not hesitate to share with you some of its past failed experiences is generally speaking trustable, especially when you are being explained – through business cases examples – that this company has learnt a lesson from its mistakes and failures.

Here are, on a quite superficial level, the main activities of three types of third party company that you will find in China.

The most common type of third party company in China is the Trading Company. This kind of company proposes full packages of services of sourcing, purchasing, production follow-up, quality control and logistics organization. The « Trading Co. » doesn’t allow itself to be a transparent entity in the sense that it doesn’t reveal to its clients the identity of the manufacturers it buys from for you under its own name. The company is therefore paid by you based on commissions only, that is to say that a percentage is added-up to the factory price of the goods that have been sourced and purchased for you, and that have been sold to you afterwards.

Then you could on the other hand work along with a Consulting company. This type of company is more oriented on assisting you on punctual informations searches about a particular market. A consulting company will therefore be able to sell to you some databases for suppliers of your market. It can also propose some sourcing activities and makes recommandations about suppliers to be selected for your purchases, mais will never make the purchase orders for you, except if mentioned differently.

Finally, the newest form of third party company – as well as the most innovative in its concept – is the Purchasing Service Provider (PSP). Strong of an expertise more focused on sourcing methodologies than on products technical specificities, the PSP works with a total transparency with its clients as well as with its Chinese suppliers, and builds its technical expertise on products thanks to this three-sides cooperation. The client signs his purchasing contracts directly with the factories, and pays the PSP for its work on a monthly fee basis. Services of QC of logistics arrangements are optional and chargeable on a package basis or sole service basis.

An Efficient Combination of Skills from the Three Parties

For your cooperation to be efficient, everybody needs to be part of the processes. But for your cooperation to be happy, it is even better that you gain the most out of the competencies and skills of all partners within the triangle relationship.

Lots of companies that turn towards third party companies to let them deal with their business in China have the tendancy to totally rely on their intermediary, without showing any willingness of cooperation. On the other hand, the attitude is “i’m paying, i want to be totally out of the game, and if the third party company is a good one then they will be able to deal with my orders without needing me”. It is a huge mistake to think that the third party company will replace you; once more, it is only a relay between you as a client and the factories. That means that, concretely speaking, you must relay to your intermediary all they need to know in terms of technical knowledge about the products, in terms of understanding of security norms, in termes of design, bi-annual planning of orders, emergency deliveries, etc. As the final client, you remain the master of decision, but on the other hand you also shall anticipate all technical, logistic and financial matters.

In between clients and suppliers, the third party company is a China sourcing specialist, in regards to the local working techniques and to the cultural and linguistic management of business with Chinese suppliers. It is your role to push them if needed, therefore it is under your responsibility to anticipate all actions to be led, by participating (even from far away) to the checking that all steps of the Supply Chain is well organized.

Finally, The Chinese manufacturers chosen by the Third Party company will bring you some extra knowledge about the technicity of the items you want to purchase, however they will only be efficient if you use great reactivity to transfer Your knowledge to the third party company in between. Also do everything you can so that this three sides cooperation lasts long, you will then avoid time-loss due to new needs of sourcing by your intermediary.

Communication : Key-Factor & Basis of each Success

Because the time for decisions is longer and the risks that the information is slightly transformed are bigger, just because there is one more actor in between the client and the supplier, it is highly recommanded that you, as a buyer, plan your work and your schedule with some more time ahead, so that you can anticipate the eventual issues that will come up. By an intense communication, you must try to erase the distance that separates you from China, geographically and culturally.

In order to succeed, write down everything. Each request or each information exchanged even by phone or when meeting up, must be traceable by email or fax that will allow all parties to follow-up with confirmed information. Also, in order to guarantee a better follow-up of your projects and orders, build a clear table that lists all the current files, and organize a weekly meeting or a weekly phone call with your contact person in China, so that you get to be informed about files status and progresses, issues, solutions brought, etc. If the third party company with which you cooperation proceeds the same way with factories, all parties will be able to get a better visibility of all orders and will be able to accept the idea of working harder to re-inforce the good basis of a long term successful cooperation.

Sophie Rebibo - Consultante Objectif Chine - sophie.rebibo@objectif-chine.com