Case Background
A European buyer placed an order with a Shenzhen-based Chinese supplier on June 24, 2024 for inverter components. The supplier promised delivery within one week but, as of April 2025, has failed to fulfill the order despite receiving full payment. Repeated follow-ups yielded only excuses:
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"Internal backlog" due to year-end orders.
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"Team transitions" and training delays.
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Holiday disruptions (Chinese New Year, Qingming Festival).
The buyer’s attempts to cancel the order or secure a refund were ignored, raising concerns about the supplier’s credibility.
Key Risks in China Sourcing (Highlighted by This Case)
1. Delivery Delays and Failure to Meet Commitments
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Issue: Numerous suppliers commit to overly optimistic delivery schedules to secure orders, often resulting in significant delays.
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Case in Point: A commitment of a "one-week delivery" extended to an excessive year-long delay.
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Preventative Measures:
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Request a comprehensive production schedule that includes specific milestones.
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Incorporate penalty clauses into contracts for delayed deliveries (e.g., a 1% deduction of the order value for each week of delay).
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2. Ineffective Communication Practices and Excuses
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Issue: Suppliers may attribute communication lapses to holidays, internal organizational changes, or ambiguous "technical issues."
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Case in Point: Complete communication blackout between Chinese New Year and April 2025, leaving buyers uninformed.
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Solutions:
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Engage a local sourcing agent (e.g., Viotech) to facilitate smooth and timely communication.
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Mandate weekly progress reports as a stipulation within the contract.
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3. Financial Risks and Non-Refundable Payments
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Issue: Certain suppliers may withhold goods or reject refund requests after receiving full payment.
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Case in Point: A buyer made full upfront payment but neither received the products nor a refund.
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Risk Mitigation Strategies:
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Employ escrow services (e.g., Alibaba Trade Assurance) or negotiate 30/70 payment terms.
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For high-value transactions, utilize Letters of Credit (LCs) for added security.
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4. Supplier Fraud or Unethical Conduct
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Issue: Certain suppliers may prioritize new clients over existing ones or become unresponsive altogether.
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Indicators of Unethical Practices:
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Providing ambiguous explanations without substantiated proof (e.g., citing "training" or "backlogs").
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Disregarding cancellation requests or refund demands.
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Protective Measures:
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Conduct thorough factory audits before finalizing any order.
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Authenticate supplier credentials using China’s National Enterprise Credit System.
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5. Limited Legal Recourse
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Issue: Enforcing contractual agreements in China can pose challenges for international buyers.
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Preventative Steps:
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Incorporate an arbitration clause specifying Hong Kong or Singapore as the arbitration jurisdiction within the contract.
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In the event of disputes, consider filing complaints with CCPIT or the local Commerce Bureaus.
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