Are You Planning to Sell Products in China?
August 01, 2012
Hello from Beijing, where it is about 90 degrees, 50% humidity and 50% pollution!
I am working with an automotive client and I am learning about the Chinese tendering process. Currently about 30% of their business requires tendering and this percentage is growing.
If you are planning to sell industrial products in China, then you need to understand the tendering process. As of January 1, 2012, the Chinese tendering laws have been strengthened. First established to regulate construction projects, the tendering process now applies broadly across industries.
The Chinese government requires a tender or bid, for any transaction, public or private, over about $100,000. The process is enforced by the central government and the banking system. Interpretation differs in each city or province regarding how the law applies. Many local governments apply the law to nearly all projects because they either “relate to public interest of society” or “utilize state-owned capital or state finances”, including bank loans.
Tendering must be carried out by a qualified tendering agent, a professional company, of mainly qualified engineers. The tendering agent prepares the conditions for evaluation of the tenders received. Tenders are done either on an open-to-the public or invited basis. Private projects normally adopt the invited basis.
Here’s how it works:
• The buyer defines the requirements for a project or for the purchase of products/equipment. If the estimated budget is over about $100,000 (650,000RMB) the buyer is required by law to set up a tender process. To do this, the buyer must hire an independent tendering agency.
• Buyers provide specifications for the tender and then vendors are asked to respond to the tendering agent with bids by a certain date.
• The bids are then made public. Bids that fall beyond a certain range, typically plus or minus 5%-10%, are declared void.
• Tenders are then assessed by a tender evaluation committee comprised of representatives of the buyer and independent experts selected by the tendering agent.
• An award is made to the lowest bidder that meets all of the requirements.
• Everyone’s bid is opened to public view. This is China’s attempt to add transparency to the buying process, notorious for fraud and favoritism.
The goal of the process is to protect bidders from unfair practices, but does it really work? If you can get your buyers to specify something that only you or your product can provide, then your competition will be unable to fulfill the tender requirements and will thus lose the deal.
The tender law is not very popular in China because it does not allow private buyers to exercise their own preferences when purchasing. It is also not popular with sellers whose bids and pricing are made public for all to see.
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