Is this really the case? Let me first tell you a real story that happened in my career.

In February 2019, I remember that after the Chinese New Year, I was waiting at the airport for a flight back to Shanghai. Just about forty minutes before I boarded the plane, I received a call from a customer named Colbert who was engaged in the distribution of children's educational toys in the Netherlands. On the phone, Colbert first sent me Chinese New Year greetings and then solemnly expressed his gratitude to me. The reason was that I not only helped him avoid a potential crisis that could have a devastating impact on his family's business during the recent Christmas promotion but also made his products very popular during the Christmas season. In addition, he had successfully signed long-term supply contracts with multiple local schools and chain supermarkets, becoming their highly trusted partner.

After receiving such good news, while feeling happy for his success, I was also proud of the profession I am engaged in, which can help people clear obstacles on their road to success. Because you also need to know that although Colbert achieved success at that time, his situation was far from so good before that. Like most startups, Colbert also experienced a very difficult time before his products became popular, and his business was almost on the brink of destruction. So what exactly happened during this period that pulled him back from the brink of failure and led him to success?

Everything has to start in 2018. Colbert, who was originally a primary school art teacher, resigned and opened a toy store due to his unwillingness to work and live a dull life. Initially, his toy store mainly represented and sold toy products from distributors in the Netherlands. However, after a long period of market research and planning, he decided to establish his own brand and combine his rich experience in children's education to launch a potentially promising puzzle toy that can help children develop their intelligence. After more than a year of product conception and design, his product team finally completed the final design of this puzzle toy. He also used the resources he had previously taught in school to lay the groundwork for the future market channels of this new product in many schools.

After everything was ready, due to his early knowledge of the strong capabilities of China's manufacturing industry, he finally decided to find suppliers in China to produce his own products.

So, like many people who came to China for international procurement and supply chain establishment for the first time, after Mr. Colbert browsed some basic knowledge and steps on Google, which taught people how to purchase in China, he began searching for manufacturers on Alibaba.com who could produce his product. After a simple information comparison and a quick inquiry and quotation process, he quickly decided to collaborate with a toy manufacturer who was located in Yiwu City, Zhejiang, China, to start his product manufacturing. Later, during a conversation with Mr. Colbert, I learned that the reason why he chose the manufacturer at that time so quickly was similar to many people. That supplier not only confirmed that they could produce Colbert's product but also offered a tempting price that was much lower than the quotations from other suppliers (of course, this can be understood from a business perspective; the cost of products is very important for his profits after all).

But what happened next almost completely destroyed his dream of success. The original story was as follows:

In the sample production stage, everything went smoothly, and the manufacturer also produced samples that looked very satisfactory according to the product design drawings and product specifications. Mr. Colbert was very satisfied and confident in the upcoming Christmas promotion after receiving the sample, so he decided to immediately invest in mass production of 20,000 pieces. At that time, the unit price was $25 per set that the supplier quoted, which meant that Colbert would pay $150,000 as the 30% deposit.

In May 2018, I participated in an international trade exhibition held in Shanghai and gave a keynote speech on risk management in cross-border procurement in China. Just then, Mr. Colbert specifically flew to China to visit his supplier and went to Shanghai to visit that exhibition after that, and he took the initiative to communicate with me after listening to my speech. After a brief self-introduction, he eagerly asked me a lot of questions about the risks of being cautious when purchasing in China. The risk management of purchasing and establishing a supply chain in China is a complex and systematic process. I could only briefly take his toy products as an example and list some risk points that need to be noted in each key step.

But when I mentioned the importance of passing the safety standards and regulation compliance requirements of the EU, such as EN 71-1 (physical and mechanical properties), EN 71-2 (flame retardant performance), and EN 71-3 (migration of specific elements), for his children's toy products, as well as the serious consequences that his products may face if they couldn’t meet those regulatory requirements, his face suddenly changed, and he quickly interrupted me and asked for more details about those certifications and tests. Then I provided him with detailed explanations, one by one.

At the end of the conversation, he told me that he had already signed a mass production contract with the manufacturer in Yiwu and planned to pay the nearly $150,000 contract deposit and put it into production when he returned to the hotel that night. But before that, even after completing the sample production and confirmation work, he had never thought about the questions related to product safety standards and regulation compliance, nor had he assessed whether the manufacturer had the ability to pass those certifications and tests, nor did he know whether the samples they produced could meet the standards. Although this was not his fault, he had no previous experience in cross-border procurement. However, it is no wonder that his face changed greatly upon hearing this, as he may have had to pay a quite painful price for that.

About three weeks after the exhibition ended, I received Mr. Colbert's email. He told me that, according to my suggestions, after meeting at the exhibition that day, he informed the manufacturer in Yiwu of the delay in paying the deposit and immediately took the samples to a professional testing agency in the Netherlands for testing. As expected, the test results showed that the raw material used in the samples produced by this supplier was recycled PE material (after recycling the already used products, they were remade into raw materials for production, which would be mixed with many impurities and even produce various chemical compositions and toxic substances), and the coating material used on the surface of toys did not meet the safety and environmental standards required by the European Union either.

Therefore, it is completely impossible for products produced using such raw materials to pass the CE certification and EN71 testing required by EU regulations.

What is even worse is that once such products enter the Dutch market, Colbert will not only be severely punished by regulatory authorities but may also cause harm to users (children), which is often long-term or even lifelong for children. It can be imagined how serious the consequences would ultimately be for Colbert, both in terms of ethics and market reputation.

Meanwhile, at Colbert's request, I later went specifically to visit that manufacturer for screening.

The result was that they were only one of many small toy manufacturers in Yiwu City that provide mid- to low-end quality products without any experience in producing products for customers in the European and American markets. They mainly targeted markets such as Southeast Asia and India, which usually did not have high requirements for product quality at that time. The requirements for product certification and testing regulation were not strict, so low prices were their core competitiveness.

Therefore, in order to obtain orders from Colbert and save costs, the manufacturer used recycled PE raw materials and inferior coatings to produce his products.

This also explained why the price quoted by that manufacturer was much lower than that of others at the time. This also confirmed one common saying in the Chinese supply market: 'Cheap goods have no good quality.' Although it's a pity to have wasted so much time, fortunately, Colbert had received my advice at a critical moment that prevented him from suffering more serious losses, but not everyone has such good luck.

Later, Mr. Colbert hoped that we could help him systematically conduct a supplier screening job and find a truly qualified supplier who could establish long-term cooperative relationships. After a strict supplier screening process, we ultimately helped Mr. Colbert find a high-quality supplier to collaborate with in China and establish an efficient supply chain risk management system. It is gratifying that the work we did also helped his product achieve success as soon as it entered the market. Now, his company's business has expanded to more than ten countries, including Europe, the United States, and Southeast Asia.

However, Colbert's story is just one of the many similar real cases that I have experienced in my 13-year career, and there are many clients who are not as lucky as him to be able to stop losses very promptly.

Since it is so important to meet the regulatory compliance requirements of the country and market where your product is located, how can you accurately determine whether the selected supplier can meet the product safety and regulatory compliance requirements that your product must meet during the early supplier screening process and before paying the deposit for your mass order? And how can you effectively avoid the potential funding that may bring you the risk of market and brand reputation losses?

I believe this is also a problem that many people who hope to conduct cross-border procurement from China and establish a safe and stable supply chain but do not have much experience urgently need to solve. Therefore, in the following article, I will combine my experience of helping clients in various industries over the past decade, especially in Europe and the United States markets, to share with you some important but easily overlooked precautions in the supplier screening process related to regulation compliance, as well as how to effectively avoid the potential risks that may arise.

Now, perhaps you already know that before importing products from China, especially for sale in markets such as the United States, European Union, Canada, or Australia, you must first ensure that all of your products comply with the local market Regulation Compliance Requirements, such as the following mandatory product safety standards and labeling requirements (which vary according to different product categories):

• Product safety standards

• Certification Requirements

• Lab testing requirements

• Chemicals and heavy metal restrictions

• Labeling requirements (e.g., "Made in China" or CE mark)

When it comes to producing and importing goods from China, I have always emphasized to all customers that the number of manufacturers in various product categories in China is very large, and their focus on markets is also diverse, including European and North American markets with particularly strict requirements, as well as markets such as India and Africa that win with cost and product prices. This has led to uneven quality among manufacturers in the Chinese supply market and also implies a significant risk of uncertainty, especially if your products are sold to markets such as Europe and the United States that require high quality and safety requirements. You must be very careful when sourcing and screening your suppliers, as it is a mandatory legal requirement for your products to meet regulatory compliance in your country. Otherwise, it will bring you extremely serious catastrophic consequences.

Therefore, the first thing you need to do is prioritize the following aspects as the first step in online supplier sourcing and assessment before conducting a verification of regulatory compliance during the supplier screening process and even before formally establishing contact with the suppliers:

• Select the supplier displayed on the website that has passed the certificates that are required for your products (e.g., CE, RoHS, REACH, LFGB).

• Select suppliers that have passed ISO 9001, ISO 14001, etc., on their website.

• Select suppliers from the catalog on the website that have experience producing products similar to yours.

• The attributes of the enterprise are 'manufacturer instead of '"trading company.

• Does the supplier have export experience in the market where your product is located (such as the US, European Union, etc.)? It is generally recommended to choose suppliers from European or American markets with higher export rates than other markets.

In general, through the above 5 aspects of assessment, you can select approximately 5–10 suppliers online from a large number of suppliers on B2B websites such as Alibaba.com as the basis for further screening of alternative suppliers.

Next, you need to establish contact with these 5–10 or even more preliminarily screened suppliers and conduct formal inquiries and qualification audits.

As I mentioned in my previous article, "Unlocking Success: The First Step to Efficient Supplier Screening and Risk Management in China.":

"The product regulation compliance requirements in your country and market are highly interconnected with the quotations provided by the manufacturers. The reason is that due to the different requirements of product regulation compliance, there are significant differences in the quality levels of raw materials required for producing products."

For example, in the case of Colbert mentioned earlier, the supplier from Yiwu City was able to quote a much lower price than other manufacturers (their quote at the time was 25 USD/set) and later included all manufacturers we helped him source that could meet the EU's Product Regulation Compliance requirements for children's toys; their lowest quote was no less than 40 USD/set. As you can see, there is a huge difference of $15/set between the two quotes. The main reason for this was the significant cost difference between using recycled PE raw materials and brand new, environmentally friendly PE raw materials.

In addition, there were other factors that affected the product unit price, including differences in the maintenance costs of mechanical equipment used in the production of recycled materials compared to those used in the production of new materials, quality inspection costs of materials, labor costs caused by differences in the quality of production personnel, etc. All of these resulted in differences in the product price due to the different requirements of the standards in your country and market. 

And that is why, before starting a formal inquiry with your supplier, it is important to first determine the product regulation compliance requirements for the country and market where your product is sold and always consider them as one of the necessary conditions for you to do supplier screening.

Now, let us return to the topic of this article. Please note that supplier screening is a complex and professional, systematic work that involves a wide range of aspects. I will introduce it to you in future articles, while this article only focuses on the "Product Regulation Compliance" part.

After conducting preliminary supplier search work, now it's time to contact the sales personnel of the 5–10 candidate suppliers that have been preliminarily selected online.

Based on my experience, it is recommended to conduct the following audits on them to verify whether they have export experience in your country and market, as well as the ability to pass the Product Regulation Compliance Requirements for your product's country and market, in order to prevent potential risks caused by non-compliance in the future.

Firstly, except as mentioned in the inquiry email, it is best for you to send a separate formal email regarding the Regulation Compliance Documents Requirement to these alternative suppliers.

In addition to a very clear description of the product regulation compliance requirements that your product needs to meet (such as CE, ROHS, REACH, FDA, etc.; the specific standards and requirements vary depending on the market for different products), suppliers should also be required to send you the testing reports or certification documents previously conducted for other customers for reference to prove that the supplier indeed has the ability to meet your product regulation compliance requirements.

Meanwhile, another benefit of sending this Regulation Compliance Documents Requirement email is that it can attract more attention from suppliers in this aspect. Because, according to many cases I have experienced, many sales personnel may overlook the important needs of customers in the early stage of quoting or confidently believe that they have the ability to meet the requirements of customers without communicating and confirming with their production or engineering departments. Their goal is to reach a transaction with you as soon as possible, but in the end, such results for you are often disappointing.

Secondly, it is best for you to request suppliers to provide references to customers they have worked with or are still working with in your country or market (such as the European Union), including their contact information.

The purpose of doing this is to verify whether the supplier has manufacturing and export experience in your country or market as they claim. Of course, you also need to be mentally prepared, as not all suppliers are willing to provide their client references. As for the reasons, they may tell you that it is their company trade secret, but the truth is unknown. However, in my experience, truly capable manufacturers with experience in your country and market are often willing to tell you which customers (especially if their companies are well-known) they have partnerships with in your country to demonstrate their strength and experience in order to gain your trust and ultimately achieve commercial cooperation.

Thirdly, if the suppliers can provide international quality management certification, such as ISO 9001, it will be an additional bonus for them.

The benefit of ISO 9001 lies in that, as your customers' needs and expectations constantly change in the future, it requires your manufacturers to continuously improve their production processes and capabilities. And the requirements of ISO 9001 provide an effective way for manufacturers to improve their production processes and capabilities so that suppliers can promote continuous improvement within their enterprises through the effective application of this system, achieving stable and improved product quality, which is super important for you. Undoubtedly, it is one of the most effective ways to protect the interests of you and your customers. If you cooperate with suppliers who have already passed ISO 9001 quality system certification, it also increases the credibility of distributors or customers when choosing your products and brands.

In addition, your supplier's performance in corporate social responsibility should also be a factor in your assessment when conducting supplier screening.

For example, environmental pollution and protection issues have become urgent global concerns nowadays. If your manufacturers have passed environmental management system certification such as ISO 14001 and have valid certificates, it is very convincing in terms of the supplier's corporate ethics and social responsibility, and it provides more guarantee for the production quality of your products. At the same time, cooperating with such suppliers will also enhance the reputation of your company and brand in the market, making customers more willing to purchase your products and distributors more willing to cooperate with you. Of course, in addition to ISO 14001, there are also certifications such as the ISO 45001 Occupational Health and Safety Management System, which reflect manufacturers' good performance in corporate social responsibility.

So, after receiving the testing reports and certification documents mentioned above from the suppliers, do you feel relieved and secretly grateful that you have finally found a qualified supplier, and you are eager to start establishing a formal cooperation relationship with them and put your product into production as soon as possible?

PLEASE WAIT A MOMENT!!!

Unfortunately, if you do this now, you are likely to face no fewer losses and risks in the future than the risks brought by not considering the Product Regulation Compliance Requirement from the beginning. Why? The reason is that the authenticity and validity of the testing report and certification documents you received have not been verified. Why do we need to verify the authenticity and validity of these files?

I will explain in detail in the next article why it is necessary to do so and how to verify these files. We'll see you next time.

Thank you for reading.

(This article is original, and all copyright belongs to the author.)

Author: Wesley Liu (Founder of ProcurementInChina.com, Leader of Procurement & Supply Chain)