Understanding procurement in China

Hans van der Plas is the co-founder of Scale Roads, a procurement company based in both the Netherlands and China. Hans has worked in the procurement industry in China since 2016. With knowledge of business markets in both western Europe and China, Hans talked to Aquatech Online about how he got started in procurement, why he wanted to work in China, and shares his experience of operating in both markets.

Why do European countries need help with procurement in China?

"People who don't have any experience with it, ask me 'why do you need support' regarding procurement in China," begins van der Plas. "Well, the mindset of the Chinese towards procurement and purchasing and quality, etc is much different than our standards in Western Europe, and from the US."

Scale Roads began in 2016, it has an office in Shanghai with eight employees. It helps small and medium sized enterprises from western Europe with their procurement needs from China.

"We take them by the hand, basically, and run them through the process."

How did you get involved in in procurement in China?

"I came to China for the first time in 2015 on a business trip with university," van der Plas begins. "I'm from a very conservative village here in the Netherlands, and that was the first time I had been out of Europe, I thought after five days I knew China!"

Van der Plas' family runs an international flower company and following graduation, and wanting to gain more experience abroad, he headed to China.

"I went there, and I liked it. And then I thought, how can I extend my stay here. Besides doing just an internship or working for a city company, I thought about starting my own business. A friend of mine in the Netherlands was purchasing from China and asked me to visit a factory. After that, I thought I should make a business out of it."

This move piqued the interest of people back in the Netherlands.

"People were asking me where I was in China because they had production going on there and they wanted someone to take a look at their operations for them, to inspect the factory they work with – some had been doing business for 10 years and had never seen them. This was the start of my procurement business."

Since then, Scale Roads has extended its offering and expanded its team. "From a side hustle into a small to medium sized company serving a lot of clients in Europe," explains van der Plas.

What are the main differences between China and Europe

One of the main procurement differences between western Europe and China is managing expectations, especially in terms of delivery and quality. Van der Plas shares an example of what might go wrong. Of course, this is not something that happens every time!

"When you purchase something as a company in Europe, you order something and you expect it to be delivered on the agreed time with the agreed quantities and the agreed quality," begins van der Plas.

"And people who are procuring the first time in China, they with that mindset. They place their order, they pay a deposit and after four or five weeks, the product will be delivered in China at the nearby port."

With the balance payment made and the goods in port, it is common not to have had communication with the supplier or to have made any checks on quantity or quality.

"When it arrives, they open the container with, for example, some home decorations and it's a complete surprise. They ordered 100 chairs and they get only 80, so they call the factory and ask about the missing 20. They get told, 'We couldn't load them in the container, but have them here in our warehouse'."

A further surprise might be when they check the goods and they are not exactly what they ordered, for example, different colours. This gives the western company a bad opinion of procurement in China, they think it's a mess, time consuming and with poor communication.

"This is where we take them by the hand. We play a bit more like a western company, every day we follow up with factories, we go to factories to check quality. This is the main difference, our mindset towards quality and communication."

Why does this happen: the losing face culture

In business, in western Europe, it is common to own up to a mistake, or to apologise for something not happening on time, whether that be an order or turning up to a meeting.

"If I do something wrong or I cannot show up on time, I will say hey, sorry I'm 5 minutes late. I'm in a traffic jam. Whereas, in China they would say, oh, I thought the meeting was at 2:50," says van der Plas.

This comes from not wanting to give a bad impression of themselves, which is something companies in Europe might find hard to understand as first.

"We are dealing with factories for more than five years and still when things are going wrong, we figure out at the end of the production. So, if they are four weeks into production and we go to the factory to inspect it and we still figure out mistakes they could have easily mentioned to us – i.e. we made a mistake at the beginning, we ordered the wrong paint, but we didn't dare tell you."

In western Europe this might seem bad business practice, but it's part of the culture.

"So, when it comes to your early stages of doing business with China, you need to understand that difference."

How do you reconcile the differences and bridge the gap?

As a company that bridges the gap for clients between Europe and China, the answer is pretty straightforward: repetition and building mutual trust.

"We contact our suppliers every day and ask for a status update - send us pictures, send us videos. We have people in our office in Shanghai, they're from China as well. And we instruct them every day to call a factory to get to know what's going on. If there's something wrong, then we should know in advance."

Scale Roads offers clients a western buying experience.

"If you place an order with us, we update you on how things are going every week or every 10 days. We just try to be open if some things are going not as scheduled or not as agreed, then we discuss that openly."

Exporting out of China is relatively easy

Van der Plas' advice for the clients is to leave the China side to Scale Roads.

"We are the ones purchasing from China. They don't have to deal with any regulation, they just need to know the regulations within their home country, or home continent, i.e. the rules regarding imports. It's very easy to export out of China, but I always recommend that companies double check everything regarding import regulations in their own country."

China has improved its trade law in recent years so that is much more in favour of western companies because a large part of the economy depends on exports.

"They want to have a good reputation in the world. They had a bad name in the recent years when it comes to exporting, so that has been improved a lot in the last couple of years."

One thing to note is that any dispute with a factory or supplier in China, will always be dealt with by Chinese law, not European.

What about if a company wants to deal directly with China?

As well as noting the differences mentioned above, western companies should not that China operates in many different ways than Europe, e.g. in terms of social responsibility, waste management, etc. It is important to note that China will not change simply to win new business.

"The Chinese markets won't care if not all their products go to Europe, because they will go to Africa or the Middle East. I always recommend that clients keep that in mind."

Payments are also different in China and a company will need to organise its financial calculations accordingly. In Europe, you can pay for supplies when they are being delivered. In China, you need to pay upfront.

"And when we go back to talking about delivery, you can pay for something that you will only receive after three to four months."

While some of these differences might seem strange to a western company, there is also much that we can learn from business in China.

"I got back from China recently, where I visited some long-term suppliers of ours. And when you go to these factories, you notice how hard they try to make you feel welcome at their place, wherever they are located. They always try to build that relationship with you. That's something we can learn from."

When thinking about procurement from China, a western European company should take time to understand how it differs from what they might be used to. Many businesses operating in China talk about the need for a specific 'China Strategy' that takes into account the different approaches to business, as well as the similarities, that will help them become successful. Including an understanding how procurement works should form part of that strategy.