China sourcing: Help creating a Purchase Order (PO) template

China business surprise 300x196

The importance of having a good Purchase Order (PO) in place when sourcing in China can’t be stressed enough.

The document sets the foundation for your relationship with your supplier. A buyer without a good PO/Contract gives too much leverage to the seller and allows them to manipulate the relationship to their advantage.

As part of PassageMaker’s Import/Export Management service, our account managers take our in-house PO/Contract templates then work with the local lawyers and project managers to create a robust document specific to the needs of our clients.

However, if you are not yet in a position to retain the services of a professional buying agent like PassageMaker, here is a behind-the-scenes look at how any buyer (large or small) can create an effective and affordable Purchase Order template that offers real protection in China.

Let’s start with the free stuff:

Here are some blog posts I wrote related to PO’s/Contracts:



Now let’s look at some very affordable options for getting professional help writing your PO.

On Amazon you can find guidebooks (do an Amazon search for China+ Sourcing) that offer templates and samples of key documents, including the all-important PO/contract.

For example, My guidebook is available for 58 USD and includes various templates and check lists. The PO template is also available as a standalone document in excel format. I recommend buying the book and templates together as a package because the book explains how to negotiate the terms and set up the PO in a way that protects the buyer’s interests.

While a template is a good start, much better would be having a custom document in bi-lingual format that is specific to your situation. An English speaking Chinese lawyer in China can provide this for a few 100 USD. Here is more information: AsiaBridge Law

Consider engaging an advisor to look after your PO’s/Contract as part of supply chain management. Here are 4 options for your consideration ranging from freelancers to large consultants:


you can also visit for my list of endorsed service providers.

In summary, now that you know how to get help building an effective document, even on a tight budget, there is no excuse for not using a well-crafted PO when buying from China.

China sourcing: Negotiation, Contracts and Payments

China sourcing negotiation contracts and payments

Exclusive recording of Mike Bellamy’s Sourcing Tutorial at the April 2014 Global Sources Trade Show in Hong Kong.
Learn the key factors and actionable knowledge that will help you prepare for “Chinese negotiation” and place safe orders!

Without a good foundation, your China sourcing project is likely to fail!

Mike Bellamy (PassageMaker founder) offers tips and best practices to ensure you are well positioned before the PO is even placed. Learn how to negotiate contract terms, and structure your payments, to protect your interests when doing business in China. The video tutorial covers some of the most important areas to consider before investing time and money on a China sourcing project. The recording of this seminar covers:

● The dos and don’ts of quality control, logistics and payment methods

● How to protect intellectual property

● Cost drivers and cost breakdown analysis

● Proven negotiation techniques

● Insight into the thinking of your Chinese suppliers

What I told CNN about China sourcing

What I told CNN about China sourcing

I was recently interviewed on camera by CNN at the Global Sources trade show on the topic of what buyers need to know about China sourcing. They put me in the hot seat by asking “give our viewers the 5 most important tips for successful China sourcing” and do it in 30 seconds or less! I wrote a 300 page book on that very topic, so I have plenty of tips, but picking the top 5 and explaining them in just 30 seconds with no chance to prepare was a little intimidating. I must have said something right as CNN aired it right away!

Here are my 5 tips as given to CNN:

Selecting the right supplier upfront is the single most important step in the sourcing process. Starting a relationship with the wrong supplier can be catastrophic. So do your due diligence and verify your supplier BEFORE you place the purchase order.

Use your research skills not your negotiation skills to get a good price/ quality/lead-time. If you know what the fair price in China is for a given widget, you can use that leverage to get a good price from your verified supplier.

Link payments to supplier performance. You may have to give a deposit, but subsequent payments should only be made once the seller achieves pre-agreed targets for ship dates and quality standards. For example, final payment could take place AFTER the final inspection is done by the buyer’s representative.

Make sure the name on the contract matches the name on the bank account and the business license at the production site. If you send money to one account and sign a contract with a different legal entity, good luck getting your money back if things go wrong. Many buyers don’t pay attention to the details and end up sending money to a private account or to a holding company rather than direct to the factory.

Be more than a PO# in the eyes of the supplier. Sell them on why you are a good partner worth of respect. If the supplier can grow with you and likes you as a person, you will find advantage when it comes to lead times, payment terms and quality.

What 5 tips would you suggest to CNN?

China sourcing: Purchasing manager’s salary in China and USA

Average us purchasing manager salary 2014

According to US Census Data in 2014, the average annual salary (exclusive of bonus and benefits) for a Purchasing Manager is USD 90,558. Their Chinese counterpart earns less than a 1/3 of that amount.

A US-based manager with even basic Asian language skills and Asian sourcing experience will command an even hirer salary. Additionally, a team of managers and support staff will need to be hired, trained and supervised if there is a desire to have the in-house resources needed to manage an international supply chain.

Spending time in Asia at the factory is almost a pre-requisite for success, but the cost of sending staff to Asia on multiple business trips can be cost prohibitive. The figures above are for direct salary only. All in cost to the American company to hire staff in the USA is significantly higher after bonus, overheads, mandatory benefits and other in-direct costs are calculated.

According to Fiducia in their report on HR costs in China for 2014, the average salary across all industries in the Guangdong providence is 4200 RMB per month. Even after adding bonus, mandatory benefits, dorm/housing and meal allowance, the direct labor is still under 15,000 USD per year.

2014 avg salary china

That number may sound very attractive but know that the “average person” didn’t attend university, doesn’t speak English and has very little international trade experience. A review of the internet job forums in China will show that a Chinese manager with a university degree and 5 years’ experience in general sourcing or trading can earn around 12,000 RMB per month in a major Chinese city. Candidates with specialized skills can earn much more.

Even at around $30,000 a year for an experienced Sr. Chinese manager, the cost is still a fraction of the funds needed to engage professional staff in a developed economy like N. America, EU and Australia/NZ.

The advantages of outsourcing Supply Chain Management to a lower cost country is two-fold:

Significantly reduced HR costs

Physical proximity to supply base

So why isn’t everybody opening an international purchasing office in Asia?

Almost all small-medium sized firms and even the majority of large buyers don’t actually set up their own office in China because hiring and managing a team in China is no easy task from a culture, administrative, legal, linguistic and economic point of view.

For those reasons, China-based agents are often engaged and there has been an explosion in the number of China sourcing agencies over the past 10 year. Unfortunately, there is a lack of professionalism, transparency and experience among these China based agents. Far too much overpromising and under-delivery.

A Chinese or Foreign owned sourcing agency will charge between 3% and 15% of the PO value to perform various services at various levels of (un) professionalism. These agents often receive hidden kickbacks from the factory. As a result, the so-called “buyer’s representative” is actually working for the factory!

Related content: Visit our FAQ page to see what is really happening if your agent offers to do the sourcing for free

Great China sourcing content worth reading from November 2013

Great China sourcing content worth reading

Here is a list of the most popular pieces of content from the China Sourcing Information Center. Much of the content below was created by PassageMaker staff who volunteer at the CSIC.

Best of CSIC 11.8.2013 to 12.2.2013

Sean Connery vs. the…what?

New BBQ. Protecting IP. Working with factory on distribution.

How is VAT applied on a domestic transaction in China?

Great China sourcing content worth reading from September 2013

Great China sourcing content worth reading

Here is a list of the most popular pieces of content from the China Sourcing Information Center. Much of the content below was created by PassageMaker staff who volunteer at the CSIC.

Best of CSIC 9.2.2013 to 10.1.2013

Why is my domestic supplier charging China VAT?

Can I get compensation for a missed delivery?

Safe Payments = Safe Sourcing

PRC Releases New Trademark Amendment, Violators Face Fines: ~500K USD

China sourcing: Are bilingual contracts necessary?

China sourcing Are bilingual contracts necessary

After’s presentation regarding the importance of bilingual contracts at the Hong Kong sourcing fair hosted by Global Sources, some clients wrote me asking more about bilingual contracts. A few clients wanted to know, “Do you really think Bilingual contracts are necessary?”

I understand clients’ concerns. China sourcing issues are something that we deal with everyday; if something goes wrong, many clients doubt a good contract will protect them from trouble. Periodically I hear comments like: ‘the Chinese legal system is slated against foreigners.’ I agree that China’s legal system is far from perfect, but I don’t think it’s slated. A Chinese person could feel just as confused as any foreigner when dealing with all these changing laws and regulations, although foreigners do face the cultural difference and language barrier.

The truth is, it’s not easy for Chinese to win a case, and it’s more difficult for them to recover his or her money, even if the judge rules in his or her favor.

So, why do we need a contract?

First, a well prepared contract gives out the signal: I care. Other people will think before acting against you.
Second, a good contract provides remedy if anything should go wrong. Although it’s not easy to win a case, if you do yourhomework, you will find you can win!

In my opinion, doing business without a good contract is akin to parking your car in public with a broken window.

What do you think? Let us know in the comments below…

Contract manufacturing in China: The brand is the hard part

I suck at blogging. Dan Harris does it better. Renaud Anjoran does it better. Tom Lasseter does it better. If you have not already done so, subscribe to those blogs. Today.

I have not done much blogging this year, as the news has been so universally awful that I’ve been unable to summon the enthusiasm to comment. Short version, it is ugly out there and it will only get worse before it gets better. Plan accordingly.

However, as someone who works with entrepreneurs and inventors on a daily basis, there is reason for hope. People keep coming up with cool new ideas they want to bring to market, and they ask for our help. PassageMaker had a solid growth year in a bad economy, so I guess I should be Chatty Cathy these days, but a combination of so much work and so little global good news as dampened my blogging spirit.

My one comment for the day deals with bringing a new product to market. Our contributions to the value chain – sourcing, supply chain management, contract assembly, logistics – are really the easy parts. The hard work is building a brand and getting it recognized in the marketplace.

If you are thinking about launching a new product, PassageMaker can take the headaches out of the production process. But we don’t (and can’t) help you sell it.

Too often in the last few years, I’ve seen clients invest thousands in engineering, patents, sourcing, tooling, etc., with little thought given to how to get the product in front of buyers. If you are planning a new product launch, assume that you are the only one who thinks it is the greatest idea since the wheel and focus on how you are going to convince the rest of the world. And budget accordingly.

My advice:

1 – The internet is great, but not everyone knows how to use it. If your plan is social media and SEO, make sure you are really the expert you think you are. Or have the money to hire that expert.

2 – If you are going Big Box, understand what that means. A PO from a major retailer can be a million bucks on paper and negative income in reality when you consider the lead-times, warranty agreements, performance penalties, etc.

3 – Advertise if you can. Twenty-some years ago, Coca-Cola assumed that their brand was so strong that they could stop advertising. They ultimately lost market share to Pepsi and had to spend a fortune to get back in the game. If you are launching a new product, nobody knows who you are, so you have to get the word out.

4 – If you can’t do it yourself, bring in investors who can help. I’ve seen businesses with ridiculous numbers of investors, none of whom contributed to making the business a success other than providing short-term financing. If you are going to add an owner to the mix, make sure they have skills to make the company a success long-term.

Basically, setting up a solid China supply chain is an important step, but that pipeline only has value if you can move product through it. We’ll help you deliver, but nothing happens until you sell something. Worth keeping in mind in this tenuous world we live in.

A big China sourcing scam to watch out for!

A big China sourcing scam to watch out for

My friend Renaud Anjoran of the Quality Inspection Blog (which is fabulous, you should subscribe if you have not already done so) posted an instant classic today. Just when I think the chutzpah and sleaziness of Chinese trading companies can’t get any worse, it does. Forgive me for quoting at length:

My friend Gaetan, from Eyo Green Alliance, told me about an incredible story. I mean, incredible to people who don’t know the Chinese business environment. He gave me some photos as illustrations, and he blurred them to avoid any dispute.

Last month he scheduled two factory visits over the same day, in the city of Shenzhen (between Hong Kong and Guangzhou). He was looking for a good manufacturer of LED lamps.

The factory he saw in the morning seemed to have a storage problem — they even placed some cartons in the reception area.

In the afternoon, Gaetan noticed he was driven to the exact same building. It was the same place!

Below is a photo of the same reception area. You will notice two things:

  • The cartons had disappeared, and revealed a large logo.
  • The company name on the wall was different.

Oh, and also… The prices he was quoted in the afternoon were 25% lower than in the morning!


Could he have spotted it before the visits? No. The company names were different, and one address referred to the area while the other gave a street address.

Read the whole thing. I have thankfully not had anything so dramatic happen to me, but this is an example of why it pays to do your homework and have an agent on the ground. If this kind of thing happens to experienced buyers, what makes you think you can avoid such situations buying online from the USA?

Father of the shipping container passes

Father of the shipping container passes

When I began this blog two years ago, my first post was about the passing of Norman Borlaug, the Father of the Green Revolution. Mr. Borlaug’s research created varieties of wheat, maize and rice that helped feed literally hundreds of millions of the world’s poorest people, including the pre-reform People’s Republic of China.

Mr. Borlaug’s inventions produced a great deal of good for the world – fewer starving children strikes me as quite good – but his detractors argued that cheap plentiful food was a bad thing. Too much food would lead to too many people, and Gaia must be saved. Their compassion only extended to mankind in the abstract. I guess some people are never happy.

Now today a coworker sends me a fascinating article on the passing of Keith Tantlinger, the inventor of the modern shipping container. While Malcom McLean usually gets most of the credit for moving the world to containerization, Mr. Tantlinger was the man who actually designed the containers themselves. If there is one item that made “Made in China” possible, the shipping container is it.

Here is his obituary and here’s the blog post sent by my coworker.

I don’t know if Mr. Tantlinger knew he was creating technology that would truly change the world, enabling the export led growth that allowed so much of Asia to crawl out of miserable poverty in such a short period of time. That change allows me and millions of other consumers around the developed world to enjoy inexpensive imported products that would be priced out of the market if they were Made in America. Indeed, many of these products would never have been brought to market, as the initial investment in tooling would have been prohibitively expensive. Anyone up for a $2500 iPhone?

I know what the pessimist side will say, international trade has cost American jobs. I can probably find a thousand economists on either side of this argument, but my first hand impression having done business in emerging markets like Mexico, Eastern Europe and China is this – economic growth is a good thing and not a zero sum game. The Czech Republic right after the fall of communism desperately needed economic growth to recover from the damage done by the previous regime. Should we have refused to trade with the Czechs? What would have happened had there been no blossoming of the export sector? I can’t think of any alternate scenario with a happy ending.

I could write for days on why American industry is or is not competitive or why you should or should not source in China. I will agree that there is always a cost to every transaction (there is a benefit too), and sometimes that cost is measured in manufacturing jobs lost to foreign competition. I will agree that “free trade” with China is a stacked deck. But billions of people are benefiting from global trade and the USA has seen its ship rise right along with everyone else. None of this would have happened without containerized freight.

So thank you Mr. Tantlinger, may you rest in peace. Those of us in the China supply chain management game wouldn’t be here without you.