What the hell does *** mean? A glossary
Just like most disciplines, product design and sourcing people talk in their own arcane lingo- designed to make it faster to talk and easier to confuse noobs. Allow me to break through the fog!
Note- if you need clarification, want me to add a term, or have a different take on an entry, let me know in the comments!
A party that performs tasks on your behalf. Warning! You are liable for the actions of an agent. So, if you have an agent that breaks the law, you are legally responsible for their actions.
This comes up sometimes in customs clearance- some people instruct their agent to clear goods under incorrect classifications (to side-step trade restrictions or duty). The thought process is that since the agent is the party committing the fraud, you won’t get in trouble if they get caught. Wrong! You are legally liable for their actions.
An agent that negotiates the customs clearance of goods.
All goods entering a nation must be processed by the customs department of that nation. In processing, the customs department ensures that the goods are correctly classified, they are allowed to be imported into that nation, and that the appropriate duty is levied.
Tax on imported items.
The Eastern idea of public authority, reputation, or standing. You’ll often hear that you should try to avoid having Chinese people “lose face”- which means basically embarrassing a person in public. Once you understand the notion of face, you can actually use it to wield leverage in situations- causing someone to lose face in order to convince them to go your way, or building your face or respect by saving face for a colleague.
Freight On Board
The most common INCOTERM for international trade. If you are buying product, you typically buy FOB a named point. This means that once the freight is picked up at that location, the responsibility for transportation and bearing the risk of loss passes from the seller to the buyer.
For ocean freighted goods, the named point is usually a port, and the key action for the freight is the rail at the side of a ship. On the port side of the rail, the costs and risks accrue to the seller. On the ship side of the rail, the costs and risks are born by the buyer
A third party that negotiates with steamship lines, rail lines, truck lines, etc. on your behalf. Many companies are too small to negotiate rates directly with steamship lines, so thy use freight forwarders to conduct these negotiates and make bookings on their behalf.
A freight forwarder will often have an in-house customs broker to help you with customs clearance as well.
A good freight forwarder is worth their weight in gold!
A “perfect” sample that you receive from the factory. The idea is that the factory trying to win your business will word extra hard to create the most perfect version of your product for the sample- and then when the products enter mass production, you will experience lower quality. Related: quality fade
A Mandarin word translating as roughly “network” or “relationships”. Really though, there is no direct translation. Guanxi is the slippery and unmapped network of family, friends, acquaintances, and mutual obligations that everyone carries with them invisibly.
Guanxi is often trotted out as an explanation for why a factory can avoid paying duties or taxes, or how a certain person has an “in” in the government and can “help” you out. What many Westerners don’t realize is that:
- A lot of “guanxi” is actually bullshit and is just smoke and mirrors to impress the laowai
- True guanxi giveth and taketh- nothing is free. If you build your business on guanxi, you are building a foundation on sand
Harmonized Tariff System
A system of codes governing the correct duty to be applied to goods entering the United States of America. You can search the HTS codes online to see what duty will be applied to your goods.
The international “common law” that governs international trade terms. These are rules for international trade that have been built up over centuries, every since the Dutch East India company set sail in 1602.
INCOTERMs are a way of simplifying negotiations across borders and cultures- and for making sure that both parties understand their rights and obligations in a transaction. For example, if you are buying FOB Shanghai, then you know you must transport the goods from Shanghai to your destination. But if you are buying DDP your warehouse, the seller is responsible for shipping, risk, and even duty on the goods you are buying.
The “boss” of a factory. Typically you want to deal with the laoban for any small to medium sized factory.
Minimum Order Quantity. The smallest order that a factory says they will accept. Note that this is often negotiable.
The location at which some action or legal formality takes place. For example, when buying goods under FOB terms, the named point is where the cost and risk associated with those goods transfers from the seller to the buyer.
Original Design Manufacturer
ODM means a manufacturer that is creating products based on your designs. The factory typically would only sell these items to you.
If you are going to a factory with engineering designs and drawings already created, and the factory is producing to your specifications, you are buying ODM. ODM is often called Contract Manufacturing.
Original Equipment Manufacturer
Generally, OEM means a manufacturer that is creating products based on its own designs (or designs they “borrowed” from another customer or factory). The factory then sells these items to other customers.
If you are going to a factory and buying an “off-the-shelf” product, you are buying OEM.
The procedures and systems used to minimize defects. There are different levels of QA, and also different sources. A factory should have its own QA plan in place (and in practice), but importers are well-served by supplementing the factory’s QA efforts with their own.
A degradation of quality from one production to another. Often, when a factory gets your business, the first production will be the best. The factory, believing you are locked in as a customer, will then be less careful with future productions- or even actively seek to lower the cost of your products by substituting lower quality components or raw materials!
Risk of Loss
The possibility of economic damage (loss). This is usually in reference to freight, and is invoked by the INCOTERMs, which specify what party is subject to the economic damage. You can take out insurance to protect against this.
Did I miss anything?
Let me know in the comments. Whether you are a newbie with unanswered questions, or an old hand, I love all input and feedback.