2019 Portuguese Supermarket Chain OEM Case

As China continues to expand its business practice and open-up more and more to the outside world, it not only makes our planet metaphorically smaller and closer, it also brings more opportunities for cooperation in economic practice and trade between China and other countries.

Shenzhen Cheertone Technology co., LTD. is a toy manufacturer specializing in R&D, production and sales. We have been at the forefront of much of China’s economic reforms, actively responding to National policies as well as world trade trends–we have consistently strived to expand our economic cooperation around the World! Every year we have participated in the Hong Kong International Toy Fair where we exchange information and discuss trade possibilities with toy manufacturers from many different countries. In this piece, we will share with you the story of a case of cooperation between us and a Portuguese customer we met at the Hong Kong Toy Fair.

Part One: Initial Conversation at the Fair

On our first day at our booth, we welcome the purchasing representatives there on behalf of Portuguese customers. They were very capable and professional, first browsing the products on our display shelf before then focusing on the mini-arcade and children’s smart-watch display shelf. They mainly examined the CT-881X and CT-882B mini-arcades and CT-W8A children’s smartwatch. They let our salesman Summer quote them the prices of these three products as well.

They then took pictures of the three products that especially interested them and recorded the prices accordingly. The purchasing representatives stated how they really liked our company’s CT-W8A kids’ smartwatch, and that they hoped Summer could send a free sample to their hotel. Thanks to how our company stipulates that every salesman has the right to send free samples to customers once a month, this was done. It made sense to do so as these purchasing representatives had stated how interested they were in our products so in order to show our excitement at the possibility of working with them Summer sent them the free samples that January.

Some important notes we took during our conversations with them was how we learned they had more than 200 chain stores in Portugal and purchased a large number of products from China every year. Also, it was discussed how all of these products were required to pass EU standards. They also mentioned how they had set-up a branch in Guangzhou which was mainly responsible for procurement, quality control, and shipment.

Part Two: Pre-Order Negotiation

Initial Pre-Selection

The day before the end of the exhibition, Summer received an email from the company’s Guangzhou branch. The main aspects covered were:

  1. Filled-in the selected product information according to the template of the customer’squotation sheet.
  2. A need to provide BSCI inspection report.
  3. Sending the whole set of electronic toy-related certificates and test reports required by EU to the customer quality control department for evaluating the validity of product certificates and test reports.
  4. Preparing the selected sample of another mini arcade and waiting for the customer to notify the international express to collect.
  5. Port of delivery.
  6. The payment terms accepted by the customer were L/C 60 days.

Upon receiving this email, Summer realized that the negotiation process would be filled with great difficulties as she had to deal with the following two problems:

First, there was how the customer requested another free sample of the mini arcade CT-882B. Due to how our company’s samples have always adhered to the principle of charging, which has also been the company’s regulations for many years, the customer company’s request for free samples was contrary to our sample charging system. In addition, Summer had already used the opportunity to send free samples to new customers in January.

Second, there was an issue with the payment methods. Our company has always accepted payment as being 100% complete before shipment, and the payment method our customer requested was a letter of credit they could pay-off at a later date. This kind of payment method can carry certain risks, and this was our first time working with this company too. It clearly affected our task volume and made it extremely important to trust our customer’s credibility.

To handle these two problems Summer communicated with the Director of that company’s foreign trade department and were able to negotiate the following solutions:

  1. The customer was clearly quite interested in our products and was also a potential high-quality customer, but due to our company’s rules and regulations needing to be followed Summer decided to pay the sample fee to buy samples and send them to the customer.
  2. We applied to the finance department for assistance and entrusted HSBC Hong Kong to conduct a credit investigation on the client’s issuing bank. The result was that the issuing bank was one of Spain’s three biggest Banks and had a good standing. With that information, we made the final decision that we could only accept l/c at sight, not forward letters of credit. In order to reach the preliminary cooperation stage needed, the customer then agreed to the payment method of L/C at sight.

After Product Selection

In April, Summer received an email from the Portuguese customer. The customer informed us that our mini arcade CT-882B and the children’s watch CT-W8A were their selection and that they were ready to sign a purchase contract with us. Each model had 2004 units, 6 pieces in a box, and required OEM LOGO, color box, and a manual.

Summer was glad that the customer had made a selection, but at that time their selection brought with it two new problems.

  1. The OEM quantity required by the customer could not meet our MOQ requirements (3000PCS/Item), and the product packaging specifications were also different from the standard packaging we had quoted to the customer before (our standard packaging: watch 60/CTS, game console 20/ CTS).
  2. We had given our product quotes at the exhibition and our company quoted EXW Shenzhen, and the customer understood the quote was FOB Shenzhen. This not only increased our production costs and transportation costs, but also had a certain impact on our production planning. Therefore, we negotiated with the customer to adjust the price of the product. The customer decided on the quotation situation during the selection of products in the exhibition and refused to agree with any modification of the price, which caused our communication to reach an impasse/stalemate.

After the follow-up communication and negotiation between our salesman and the customer for many times, the customer understood our situation and finally agreed to our price adjustment.

Part Three: Order Details and Problems Encountered Before Delivery

The order details were as follows

  1. Children’s Watch: CT-W8AScreen silkscreen logoWatch case with CE marking

    Customized version of the sunroof box

    Customized Portuguese manual

  2.  Mini arcade machine: CT-882BPacked with a sticker showing the product information in Portuguese on the bottom of the neutral open sunroof box

    Customized Portuguese manual

On May 31st, our company received the spot L/C applied for by the client, and the project’s production was started. Because they were working on many different projects at the same time, the client’s design department failed to send the relevant guest design materials on time, therefore it was not until Mid-July we collected all the OEM materials was mid-July, which was 20 days later than the originally planned upon time period.

At the same time, the Portuguese client company’s quality department staff received the existing related products which we provided certificates and test reports of, then told us that we had some product certificates and test reports that did not meet the requirements of the latest European Union standards. This lack of part of the relevant product certificates required us to redo that part of the certificate. Our existing product certificates and test reports were prepared in accordance with international standards according to other customers we have worked with, so it was a bit surprising to have this customer asks for a more complete product certificate. However, with the attitude of desiring a win-win result and long-term cooperation, we agreed to update and supplement the missing product certificate and test reports as was requested by the customer.

Our factory has always strived to have strict quality control and engage in inspections at every stage of shipment. After receiving the materials from a supplier, QC takes a certain amount of materials and always sends them to the SGS laboratory for testing. After about 7 working days, the results of our inspection for this order were complete. The results showed that the Phthalate in the charging line of the CT-W8A and the battery line exceeded the standard, but did not meet the customer’s requirements. Therefore, we returned the material to the supplier, and required the supplier to provide materials that could pass the EU requirements, and asked the material supplier to compensate us for our losses from these subpar materials.

Throughout engaging in our strict quality inspection, the mass production was completed at the end of August. To ensure the highest quality, we also informed the quality inspection department for the customer to arrange an in-depth inspection of the goods. The customer sampled the bulk goods according to the AQL2.5 standard on-site and sent 6 samples of each style to SGS for testing.

Part Four: Shipping and Letter of Credit

After completing all of the product tests we arrived at the stage of delivery and foreign exchange settlement.

First, because the customer’s design materials were slow to confirm and due to the subsequent rework of packaging and materials not being up to standard, the communication process also took some time. The current sight letter of credit was about to expire soon, so we required our customer to modify the validity of the letter of credit and submit the latest date of presentation according to reasonable requirements.

At first, the client said that they could accept discrepancies without modification. However, since the letter of credit was the only proof for us to receive the foreign exchange, we asked the customer to assist us in proposing the customer’s amendment to the issuing bank. The customer applied to the issuing bank for amendments to the L/C, but the validity and date of the L/C were not modified as requested by us. Then, due to how there was a 7-day national unified holiday in China in the middle of the month, we could not complete the delivery of the document within the validity of the letter of credit and the latest document submission date. Thankfully, after further communication between the two parties, the customer reapplied to the issuing bank to modify the L/C.

It took several working days to receive the letter of the credit change notice. Our customer was requiring us to ship first because they wanted to put our products on the shelves before Christmas. If they had to wait until the shipping date after the National Day holiday in China, they would not be able to line-up with their planned Christmas promotion activities. So Summer applied for special treatment to be given to the company. In the spirit of trust in our customers and believe this would set a good foundation for long-term cooperation, the company agreed to deliver this exception to the customer’s designated warehouse first, and then assisted the customer with catching-up with the scheduling of the last ship before the festival.

Our company then received the original bill of lading as well as other documents and gave them to our notification bank (HSBC Bank) before the holiday. We then received the foreign exchange smoothly after the holiday.

Part Five: Customer Feedback

In November, according to the shipping schedule, the batch of goods should have reached the stage of customs clearance. Summer followed up with the customer by email to confirm that this batch of goods had been successfully cleared and received. We were prepared to work with customs should the documents for customs clearance had not been enough. The follow-up reply from the customer indicated they had been successful in customs clearance, and thanked us a great deal for assisting them in catching up with the shipping schedule before the holiday. When the sales data of their Christmas promotion activities were to come out in December, we planned to contact them with the plan of returning orders and the new product development project. With this, the project had come to an end.

Shortly after Christmas, Summer received an email from the customer. Our two products were very popular with consumers as a part of the Christmas promotion due to price concessions, good experiences with our products, and cute packaging. We were informed that they had an interest in seeing our new products at the January 2020 exhibition and they hoped to work with us further to establish a long-term cooperative relationship with our company.

Our products are well-liked and recognized by customers and consumers. As a manufacturer, we continue to learn from each order and work hard to continuously improve our products, so that more people will fall in love with Cheertone products made in China!

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