china briefing: importing and exportingfiles.meetup.com/1439730/roseamary china meet-up...

© 2009 Blue Silk Consulting. All Rights Reserved

Rosemary Coates

Phone: 408-605-8867rcoates@bluesilkconsulting.comwww.bluesilkconsulting.com

China Briefing: Importing and Exporting

mailto:[email protected]


Who is Blue Silk Consulting ?

• Blue Silk Consulting specializes in Global Supply Chain business processes and technology enablement

• We are a consulting firm, founded by a former KPMG, Answerthink/Hackett and SAP Executive, with 80+ clients and over 20 years of consulting experience

• We provide expertise in• China Sourcing and Manufacturing• Global Supply Chain Strategy• Information Across the Supply Chain• Import/Export Processes• SAP Planning and Blueprinting• Expert Witness Services

• About our name• “Blue” color in China symbolizes

wisdom, scholarship and trust• “Silk” is reminiscent of the Silk

Road, reflecting our Global Supply Chain expertise and emphasizing China

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Some of Our Clients

Key Industries • High Technology• Transportation &

Logistics• Industrial

Manufacturing• Oil & Gas• Retail• Publishing• Consumer

Products• Aerospace &

Defense• Chemicals• Automotive

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• History• Economic Development• Guanxi• SEZs• Education• Communications• Pollution• Chinese Firewall• FCPA• Supplier Selection• Contract Mfg• Plant Tours• Shadow Factories• Audits• Apparel• Green Initiatives• Mfg Areas• Negotiating• Logistics• INCOTERMS• WTO• Management• IP• JVs• Women in China• Food• Chinese New Year• Safety

China Expertise

• Book published in Nov 2009• 24 Senior Executives were

interviewed for this book• High Tech• Retail• Apparel• Consumer Products• Communications• Education• Green Technology• Software• Logistics• Publishing• Automotive – Electric Vehicles

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Why Learn About China Trade?

• Within 10-15 years, China will be the largest economy on earth• China has about 1.5 billion people – 1/6 of the world’s population• China sourcing and manufacturing

• 35%-40% of the world’s production is already in China and this number is growing. The Pearl River Delta is “the world’s factory”

• Significant cost benefits…Chinese vendors can save you 40-70% over US domestic costs

• Selling to China• Potential market to sell goods and services in China is enormous. The Chinese

middle class is rapidly expanding and hungry for western goods• Businesses involved in exporting, both large and small, generally weather downturns

in the US economy much better than businesses tied solely to the US domestic economy

• It’s inevitable!

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Scatter graph of the People's Republic of China's GDP between years 1952 to 2005, based on publicly available nominal GDP data published by the People's Republic of China and compiled by Hitotsubashi University (Japan) and confirmed by economic indicator statistics from the World Bank

Phenomenal Growth Since 1980

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Most of the Industrial Development is on the Eastern Seaboard

15 free trade zones, 32 state-level economic and technological development zones, and 53 new and high-tech industrial development zones have been established in large and medium-sized cities

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Finding and Qualifying Suppliers and Manufacturing Sites

• Do analysis first• Find multiple suppliers• Decide on what to source and

manufacture• Use Alibaba.com or Global

Sources.com for small businesses• Find suppliers at trade fairs• Use business brokers• Communicate important information in

writing, such as standards and component material requirements


Starting Up and Managing Operations

• Tour the plant (all plants)• Validate the Infrastructure• Pay attention to supplier

operations. Watch for shadow factories

• Be there for first articles• Don’t hesitate to give feedback, but

always allow Chinese to save face• Be diligent about quality. Watch for

“quality fade”• Go to China often and audit the

factory


Shadow Factories• About 70% of all legal factories in China have

shadow factories• Secondary manufacturing facilities and

subcontractors• Usually near the primary factory and producing

the same goods at much cheaper cost• May violate safety and work conditions• Avoid paying taxes• Costs are averaged over the two factories to

keep the “China Price” low• Working conditions may be unsafe, hours are

longer, days off are few (16-18 hours/day, 6-7 days/week)

• Workers without work experience may start here

You will be shown the 5-star factory, but never the shadow factory


Quality Fade – The Process Of Degradation Over Time

• Single biggest issue in China manufacturing

• Goal is to reduce production costs • In the West, companies would focus on

improving efficiency or negotiating better supplier contracts. In China, the focus is on cutting production costs

• Your product:• Plastic bottle may get a little thinner• 100 ml may become 99 ml• Labels may get slightly smaller• Wiring may be downgraded• Water used to mix product may be impure

• You must be vigilant and constantly test for quality


Don’t Be Short-Sighted on Logistics

• Logistics are an essential component of a successful deal• Select a reputable Logistics Provider (Freight

Forwarder and Customs Broker, Warehouse)• Look for Logistics Providers with:

• Global operations

• Standardized procedures• Good global computer systems and communications

• Avoid Logistics Providers with:• Small local operations

• Agency network instead of their own offices• Inability to provide you with total cost estimates

• Bigger does not mean more expensive

Port of Shenzhen


Factory makes product

The Generic Import Supply Chain

As of Jan 1, 2010, must transmit US

Customs 10+2 info prior to loading

Forecast – Vendors – Orders- Production – Logistics – 10+2 - Carriers – Customs – Buyer – Warehousing – Distribution - Customer

PO is placed with foreign vendor

Factory vendors supply parts based

on forecast

Container is loaded

Documentation is prepared

Ocean or Air booking is made

Transported to port of exit

Ocean or Air transit Customs clearance Delivery to buyer

Arrival and debarkation

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Three Most Important Things for Importing

• Terms of Sale (INCOTERMS)• Harmonized Tariff Classification Number (HTS)• Country of Origin• Proper Valuation

Many agencies besides Customs have jurisdiction over imports such as Food & Drug Administration; Alcohol, Tobacco & Firearms; Fish & Wildlife

Use a Licensed Customs Broker to assist with the import process

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Each process includes information management systems

Your On-Line MP3 Order

Foxconn factory in Shenzhen receives order at 8am. MP3 is assembled, tested and packed

Orders are bundled and packed to

FedEX destination cities such as

Oakland by 5PM in China

Air freight containers clear

US Customs electronically at the FedEx hub in

Anchorage at 2AM

Containers are sorted and loaded on planes for

destinations in the US by 4AM

Your MP3 player is delivered before 2PM to your door in

Silicon Valley

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You order an MP3 player on line this morning


A Word About Standards

• In international trade, standards include:• Documents• INCOTERMS (FOB, CIF, FAC, DDP – there are 14 ICC INCOTERMS)• Harmonized Tariff Schedule Numbers• Country of Origin• Valuation

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Landed Cost Models• Landed costs may include:

• Warehousing costs at origin• Export packaging• Loading charges• Inland freight to the port of exit• Documentation and export license charges• Terminal charges• Freight forwarder fees• Ocean or air freight charges• Arrival charges• Duties and taxes• Customs Broker fees• Delivery to destination

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10 minute break


The Generic Export Supply Chain

Checked for export license requirements and Restricted Parties

Forecast – Vendors – Orders- RPL Screening - Production – Warehousing - Logistics – Carriers – Customs – Distribution - Customer

Factory assembles product

Customer places order

Factory vendors supply parts based

on forecast

Container is loaded

Documentation is prepared, carrier booking is made

Transported to port of exit

Ocean or Air transit Customs clearance Delivery to buyer

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The Most Important Things for Exporting from the US• Terms of Sale (INCOTERMS)

• Harmonized Tariff Classification Number (HTS)

• Export Control Classification Number (ECCN)

• Proper Valuation

• Restricted Parties List must be checked

• Commodity Classification Automated Tracking System(CCATS) alpha-numeric code for software encryption

• Applicable US Department of Commerce and Department of State Licenses

Use a Freight Forwarder to assist with the export process

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• Issued by 70 participating countries • Presented when:

• exporting from origin Carnet country• entering a Carnet country• re-exporting back to the origin country within 12 months

Upon presentation, the Carnet permits the equipment or merchandise to clear customs without the payment of import duties and import taxes.

An ATA Carnet is a useful tool for temporary exports

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Payment of import duties and taxes is not necessary because the Carnet guarantees that the merchandise or equipment will be re-exported within a year.


US Dept of Commerce – Export Administration and Enforcement – Bureau of Industry and Security

• Compliance:• All parties to U.S. export transactions must ensure their exports fully

comply with all statutory and regulatory requirements. Compliance not only involves controlled goods and technologies, but also restrictions on shipping to certain countries, companies, organizations, and/or individuals. BIS works closely with the export trade community to raise awareness of compliance best practices and "red flags" of potential illicit export activities, and to identify and act on export violations.

• Informed, voluntary compliance with U.S. export controls by the export trade community is an important contribution to U.S. National Security and a key component of BIS's export administration and enforcement programs

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Major Chinese Ketchup Manufacturers' Source:MarketAvenueUpdated: 2007-12-18

Miscellaneous China Facts• 60% of the world’s ketchup comes from

northwestern China

• China Per capita income is approximately $5400/year vs. the USA which is $42,000 (World Bank PPP 2009)

• There are 350 million middle-class citizens in China (more than the US)

• Factory girls doing electronic assembly work in the Pearl River Delta (Guangzhou, Shenzhen, Dongguan) China earn about $100/month, live in factory dorms and send about 1/2 of their earnings home to rural China

• There are 130 million migrant workers from rural China – largest migration in human history

• China has 150 million manufacturing jobs. India has 10 million. The US has about 20 million


• Population of China is 1.3 - 1.5 billion depending on who is counting

• All of China is on 1 time zone

• China has 3% of the world’s autos, but 40% of all fatal traffic accidents

• Primary languages are Mandarin, Shanghainese and Cantonese – the written characters are the same, but the pronunciation results in completely different spoken languages

• Translations from Chinese characters into a Romanized phonetics system for Standard Mandarin is called “Pinyin” which is helpful for computer programming and communications

• There are more English speakers in China than any other country in the world

• Surprise! 70% of economic production in China is now (2009) from privately held enterprise

More Miscellaneous China Facts


The Future• China has 150 million manufacturing jobs and growing• China supports this growth with unrelenting infrastructure

development• You will inevitably work with Chinese suppliers and

manufacturing• “Comu-capitalism” is the likely form of government for at least the

near future• China is choking on the economy – the air and water pollution

problems are horrific. China’s greatest achievement is also its biggest burden

• China relies on coal for 2/3 of its energy needs• China’s single biggest challenge will be its environmental issues• Sulfur dioxide and nitrogen oxides spewed by China’s coal-fired

power plants fall as acid rain on Seoul and Tokyo. Particulate pollution over the Los Angeles basin originates in China

• Bigger issue is water – aquifers in northern China are being depleted. Nearly all of the water from the Yellow River is used for agriculture and industry. Chinese industry uses 4-10 times more water per until of production than in West Europe and the US. Factories and farms dump waste into the rivers.

Benxi, Liaoning Province

© 2009 Blue Silk Consulting. All Rights Reserved26

Rosemary Coates is the President of Blue Silk Consulting.

Prior to Blue Silk Consulting, she was a Senior Director at SAP, the Supply Chain Practice Leader at KPMG Peat Marwick and at Answerthink, and a Regional Manager at Hewlett-Packard.

She has nearly 20 years of consulting experience with over 80 clients, worldwide.

Ms. Coates is a Licensed United States Customs Broker. She is a Lifetime Credentialed Instructor, California Colleges and Universities. She taught Management, International Business and Importing and Exporting for 10 years.

Ms. Coates earned an MBA in Finance and Operations Management from the University of San Diego and a Bachelor of Science Degree in Logistics from Arizona State University.

She has extensive knowledge and experience in manufacturing and outsourcing in China. She has authored a new book: 42 Rules for Sourcing and Manufacturing in China. (Available at Amazon.com)


Rosemary Coates, President

Phone: 408-605-8867rcoates@bluesilkconsulting.comwww.bluesilkconsulting.com

Questions?

mailto:[email protected]