For many years, China has been known as the factory of the world. Low labor and manufacturing costs make China the perfect source for foreign entrepreneurs in their purchasing projects. The sourcing procedure is often related to the purchasing strategy of each company, however, we can define common stages specific to sourcing in China. Here we will see two main types of sourcing and the main strategies that are commonly used in China.

Foreign companies have mainly two options while sourcing in China. Some enterprises decide to set up their own sourcing teams and others prefer to establish partnerships with sourcing service providers.

WFOE option 

The first option usually concerns bigger companies because of the cost and management of the team. In fact if a company decides to establish its own sourcing team, first of all, it has to set up a legal structure in China. The most common ways are to establish a representative office or a wholly foreign owned enterprise (WFOE). The nature of the legal structure highly depends on the purchasing strategy of the company. If the sourcing team only needs to find suppliers and control the purchasing, a representative office might be enough.

However if the Chinese sourcing team directly does the purchasing, a WFOE should be set up. The sourcing teams should mostly be composed of Chinese members, because they will have to deal with manufacturers who often do not speak English. This involves difficulties in terms of human resource management if the foreign company does not have much experience in Chinese management.

Location 

Another matter that should be considered while establishing a sourcing team is its location. As you may know, some regions and cities in China are specialized in specific types of manufacturing. For instance, if you are looking for plastic injection parts, the area of Ningbo or Taizhou City (Zhejiang Province) may be the most suitable for you.

Another example could be electronic products that are mainly manufactured in the region of Shenzhen (Guangdong Province). That is why it is important to choose the location of your sourcing team, and in order to have a better control of your purchasing, your sourcing team has to be geographically close to the manufacturers.