Navigating sourcing in China: Insights for procurement professionals

By Federico Marino and Giulia Fabrini

Despite ever-shifting trade relationships and supply chain disruptions, China continues to offer compelling opportunities for cost optimisation, particularly for direct materials sourcing. 

However, realising the full potential of sourcing in China requires an in-depth understanding of regulatory differences, cultural nuances, and evolving market dynamics. It also demands a comprehensive assessment of all cost components affecting the business case.

Below, we outline key considerations for procurement professionals to ensure cost-effectiveness, compliance, and resilience when sourcing from China.

Sourcing for the domestic market versus export

The approach to sourcing in China depends on whether products are destined for the domestic market or export.

The Chinese domestic market is highly competitive and fast-paced, with a strong emphasis on cost and delivery speed over operational capabilities. Due diligence on suppliers is commonly conducted using national platforms like Qichacha, and certification requirements are generally less stringent than in Western markets. For example, suppliers catering exclusively to the domestic market may not prioritise obtaining certifications such as CE, RoHS for electronics, or REACH for chemical products.

However, when sourcing for export markets, compliance standards become significantly stricter. Suppliers must meet international regulations, resulting in a longer validation process as additional due diligence is required. 

Beyond compliance, businesses should also carefully evaluate logistics costs, tariffs, and duties, as they can significantly impact the overall feasibility of sourcing from China versus alternative locations. While logistics costs for domestic sales are typically stable and often included in supplier quotations, export logistics pose higher risks – especially for heavy goods such as machinery and industrial components. Additionally, geopolitical developments and changes in free trade agreements can lead to fluctuations in costs and regulatory frameworks. Understanding these cost variables is essential to making informed sourcing decisions.

The importance of relationships in the sourcing process

While fundamental supplier selection criteria – both commercial and technical – remain consistent worldwide, the approach to procurement in China differs significantly from that in Western markets.

The sourcing process in China tends to be faster and more informal, with suppliers demonstrating agility and quick turnaround times. Unlike Western procurement processes, which are often highly structured and documented extensively, sourcing in China relies more heavily on relationships. Communication is frequently conducted through platforms like WeChat, which facilitates rapid negotiation cycles over rigid procurement protocols.

Therefore, building strong personal relationships with suppliers is critical for success in the Chinese market. Trust is primarily relationship-based, and implicit communication often carries more weight than formal agreements. This differs from European and North American markets, where transparency, contractual obligations, and structured performance metrics, such as KPIs and SLAs, define supplier relationships.

In China, direct negotiations and face-to-face meetings are the most effective way to secure favourable terms. Companies that invest in establishing rapport and long-term partnerships can often obtain more flexible pricing, improved service, and better overall supplier engagement.

Mitigating supply chain risks

Despite its advantages, sourcing from China comes with inherent supply chain risks, particularly for companies with operations in Europe and North America. 

One effective strategy to mitigate potential disruptions is dual sourcing: establishing alternative suppliers in nearby regions. This diversification helps safeguard against global supply chain shocks, such as port congestion, geopolitical instability, and crises like the Red Sea disruptions.

Additionally, long lead times can pose challenges for companies requiring just-in-time inventory models. A collaborative approach with Chinese suppliers can help resolve this issue – for instance, establishing joint ventures or regional warehousing solutions closer to production hubs. This enables faster stock replenishment, minimising the need for excessive on-site inventory while ensuring continuity of supply.

Such solutions are particularly beneficial for securing critical components and maintaining strategic supplier relationships, allowing companies to balance cost efficiency with supply chain resilience. Suppliers, in turn, benefit from closer access to international markets, expanding their customer base and increasing their competitiveness.

A strategic approach to sourcing in China

China remains an attractive sourcing destination, offering businesses the potential for cost optimisation and supplier diversification. However, success in this market requires adaptability. 

By conducting thorough due diligence, fostering strong supplier relationships, and implementing risk-mitigation strategies, businesses can maximise the benefits of sourcing from China while ensuring long-term resilience and efficiency in their procurement strategies.