Guide to finding the right clothing manufacturers in China

Learn how to find the right partners in affordable outsourcing destinations. 

Looking to design your own T-shirt or launch a knitwear collection? Outsourcing to China or other low cost countries could be your only option.

In this article, I explain what you need to know when selecting a clothing manufacturer, substance regulations, material quality and managing the product development and production process.

Regardless of whether you are an apparel start-up looking to try out a new product line, or you consider yourself the next Karl Lagerfeld, this article is packed with actionable advice for you. But first, I will explain why buying wholesale clothing from China is rarely an option.

Buying wholesale clothing from China

The Minimum Order Quantity (MOQ) of clothing and textile items is often 300 to 500 pieces per design. That translates into a major investment, assuming that you want to launch an entire collection. Many importers assume that the solution to this is skipping manufacturing to purchase off shelf clothing from wholesalers.

Of course, there are clothing and textile wholesalers in China. In fact, there are tens of thousands of them. However, these wholesalers, trade items manufactured for the Chinese market. Take a look at Taobao.com (China’s Ebay) and see for yourself. You can get a T-shirt for 2 dollars and a pair of jeans for the price of a Big Mac meal. But, China is not a magic land where basic economics don’t apply. In other words, you do get what you pay for.

In fact, you might get a bit more than you really want. At least in terms of regulated substances, such as Formaldehyde and AZO-colors. China’s substance regulations are more lax than those in the west. Thus, buying wholesale clothing from China is rarely (if ever) an option, unless you are willing to risk having your items seized by customs – or face a forced recall.

Important factors when selecting a clothing and textile factory

Not all clothing and textiles manufacturers are equal. Making a random factory selection online, without verifying that the supplier is able to reach your quality requirements, is likely to end up in disaster. Below follows an introduction to the three main factors that really matter, when selecting clothing manufacturers in China.

#1: Substance control and compliance with foreign textile regulations

Clothing textiles are regulated in most countries, including the United States, Europe and Australia. Most applicable safety standards, such as REACH (Europe) and FHSA (United States) regulate substances, such as formaldehyde, AZO-colors and asbestos. Most Chinese manufacturers, especially the smaller ones, are not aware of the substance content in their textiles.

It’s a deeply rooted issue that goes way beyond the manufacturer. All clothing manufacturers purchase fabrics and components from sub-contractors. The number of sub-contractors can range from two or three, to more than one hundred. Ensuring that no non-compliant fabric slips through requires the supplier to test a large number of samples, which most small factories consider too expensive and time consuming.

#2: Textiles labeling requirements

Clothing and textile regulations are not only limited to substances, but also product and packaging labeling. These labeling requirements vary greatly between different countries. However, most countries require labeling to cover Country of Origin (Made in China), textile fiber content and washing instructions.

However, a supplier cannot really be compliant or non-compliant with labeling requirements. In fact, it’s your job to design the textile label, and verify that it’s compliant with applicable regulations in your country. The supplier’s job is to print it. That said, they must be able to provide you with information about the textile fiber content and washing instructions.

#3: Fabric quality

Good suppliers provide high quality fabrics and bad suppliers provide low quality fabrics. But, it’s not that simple. A couple of years ago I learnt that myself, the hard way.

In 2011, we were tasked with managing the product development process of a new polo shirt collection for a European brand. They had already selected a new supplier in the southern Fujian province to manufacture their new designs. It was a good supplier. Clean facility, long history, plenty of capital, modern machinery and a strict quality management system.

The client received the samples and testing began. A few weeks of usage and washing later, it was clear that the material quality was far below the clients' expectations. While they wanted to match brands like GANT and Ralph Lauren in terms of quality, this sample would go straight to an outlet.

Obviously, the client was upset about this, and we submitted a complaint to the supplier. They made another batch of samples. But the result was the same. This was when we realized that this may be a reliable supplier, yet unable to match our buyers quality requirements. It turned out that they were indeed specialized in making low end apparel, and pretty good at it too!

Before you get started, you need to get your fabric specifications in order. Never assume that a Chinese clothing and textiles manufacturer is specialized in making items matching your quality requirements, regardless of their technical qualifications.

Product development process

When you have selected a few suppliers (not only one, as explained further down in this article) it’s time to put them to the test. Keep reading, and find out how to manage the clothing product development and production process:

Step #1: Design drafting, material selection and product specifications

Chinese manufacturers are entirely accustomed to producing items according to buyer specifications. While some suppliers offer design services, they will certainly not help someone to design a new collection based on a random inquiry on an e-commerce platforms like Alibaba.

Before you even bother to contact manufacturers, you need to get your specifications in order. These include, but are not limited to, the following:

• Design drafts
• Design elements (e.g. collar)
• Dimensions
• Fabric type (e.g. 96% cotton and 4% spandex)
• Fabric weight (e.g. 120 gsm)
• Printing or embroidery (e.g. screenprint)
• Pantone colors
• Buttons (design, material)
• Seams
• Textile label (design files and dimensions)
• Compliance requirements (e.g. AZO-free colors)

You may also complement a product specification with physical product samples, in case you intend to replicate a certain color, material or design elements of an existing product. However, certain components, such as buttons, are better left open until you know what the supplier has to offer.

In case you fail to provide sufficient product specifications, you are likely to receive items of very poor quality. Misunderstandings occur easier than you could possibly imagine, and there is no universal definition of what “good quality” is. Nothing should be left out of your product specification.

Step #2: Sample development

This is when it gets interesting, but act with caution. First of all, it’s way too early to make a final supplier selection at this stage. Instead, you shall select at least three or four suppliers that produce clothing samples simultaneously.

In my experience, roughly 50% of the suppliers fail to manufacture satisfying samples. They might lack the precision to get the seams straight, provide low quality material or prove that they don’t really care that much about following your design requirements.

Samples take time to develop, and often require a few revisions. All of a sudden three months have passed. If you have made a final supplier selection too early, you might need to start all over again. That’s why it’s critical to keep several supplier options at hand at this stage. Thereby, you can simply ditch the supplier failing to produce satisfying samples, and move on with those that succeed. Yes, it costs a bit extra to buy samples from four suppliers, rather than only one. But, considering the time and money you will save, it’s well worth it.

Step #3: Compliance testing

Previous compliance means that a supplier can prove that they are able to ensure compliance. While that is a key qualification requirement, it’s not a guarantee for future compliance. Thus, you shall submit material samples for compliance testing, before mass production begins.

But, this is also when it gets really complicated. Fabrics are purchased from sub-contractors, and suppliers rarely keep them in stock. The fabric samples that are available during sample production may not be available by the time you place your order. Even if the fabric used for mass production is visually identical, it may come in another batch (thus it may contain other chemicals) or be from a completely different sub-contractor.

In a worst case scenario, this means that you could end up with clothing made of non-compliant fabrics, even though the pre-production fabrics passed compliance testing. However, despite this risk pre-production fabric testing is critical. One way to minimize the risk further is to have fabric samples compliance tested as soon as the batch used for your items arrives in the supplier warehouse, but before mass production begins. That way you can at least avoid a situation where you are left with an entire batch of non-compliant apparel. Sounds complicated? Not so much, if you follow the process below:

1. Select fabrics and confirm applicable substance regulations
2. Ask your supplier if the fabric used for mass production originates from the same batch and/or from the same sub-contractor
3. Collect and submit pre-production reference fabric samples to the test laboratory
4. Supplier begins mass production and order fabrics from one or more subcontractors
5. Collect and submit batch sample reference fabrics to the test laboratory
6. If compliant: approve production

As one material, and sometimes color, requires a separate compliance test, costs increase if you use many different fabrics and colors. If you are on a small budget, try to limit the number of different fabrics used in your apparel.

Step #4: Sales contract

Before you pay the deposit and production begins, a Sales Agreement shall be signed by the clothing manufacturer. The main purpose of the sales contract is not to get prepared for future disputes, but to prevent them.

First of all, it shall prevent misunderstandings. Thus, it shall include product specifications, design drafts, material specifications and color samples. You may also attach physical samples, for the supplier to sign and stamp.

However, these specifications may be useless unless you put pressure on the supplier to actually comply. This can only be achieved if you make the supplier understand that you will verify compliance, and that you have a bargaining chip at hand, in case they wouldn’t.

In order to verify compliance, you need to follow up with Quality Inspection. I’ll get back to that in a bit. The payment is also critical. If you pay a supplier 100% in advance, they no longer have an incentive to remake or repair defective items, in case the quality inspection fails. This is why the final balance payment shall be withheld until the quality is verified.

Step #5: Quality control

Manufacturing is not a science. Quality issues are certain to occur, to a varying degree. They can’t be completely eliminated, but they can be managed and reduced to a degree that they don’t affect the viability of your business.

Forget about returning defective items to China. Low cost manufacturing is cheap for a reason. Instead, you must verify that your clothing reaches your quality requirements before it’s packed and shipped. Thus, a Quality Inspection shall be executed in the manufacturer’s facility, after production – but before shipment.

There are a number of defects that may occur when manufacturing clothing. Below follows a list of defects I have stumbled upon:

• Poor seams (e.g. not straight, loose threads)
• Discoloration
• Skewed embroidery
• Incorrect dimensions
• Loose buttons and zippers
• Dust and dirt

However, certain quality issues cannot be detected during a single factory inspection. For example, poor quality fabrics may lose fitting, only after a few washes. This is why extensive sample testing, and actual usage, is critical, before production begins. 

This article is re-published with permission from Frontier's content partner, ChinaImportal, an e-commerce platform that assists businesses looking to import products from China.

See the original article here.

Private equity investment in French-speaking Africa

Paris-based law firm, STC Partners, assists French and foreign investment funds in managing transactions in listed and unlisted companies. In this interview executives at the firm Laurence Elong-Mbassi (Attorney at Law - Of Counsel, Head of the Africa Tax and Legal Practice) and Anne-Sophie Hébras (Attorney at Law - Of Counsel), talk about how reform initiatives in certain countries in West and Central Africa are helping to make investing more flexible and efficient for private equity investors.

How has STC Partners helped private equity fund managers invest in French-speaking Africa?

We have assisted private equity firms in many French-speaking countries in West and Central Africa, and in the Maghreb, notably Morocco and Tunisia, as well as in some English-speaking African countries, such as Nigeria. We have helped teams throughout the deal life-cycle of the investment fund by advising on the legal and tax structuring of the fund itself, drafting and negotiating the fund documents, structuring transactions between the general partner and the advisory and other associated companies, and in performing legal and tax due diligence for investment and exit purposes. Our affiliate, C2A, supports us through their presence in several countries of West and Central Africa, including Côte d’Ivoire, Guinea, Cameroon, Congo and Gabon.

In your experience, how has the Organisation for the Harmonisation of Business Law in Africa (OHADA) benefitted private equity fund managers and investors operating in the OHADA* region?

Firstly, the OHADA Uniform Act relating to commercial companies and economic interest groups (the Uniform Act) benefits private equity investors focused on this region by introducing a common form of law for these groups across OHADA treaty signatories. This greatly enhances efficiency in structuring and administration, and reduces the relative risk when investing in the different countries of the OHADA area.

The Uniform Act has recently been amended (effective 5 May 2014) and introduced greater flexibility in the management of the legal structures available to investors and funds to help secure their operations in the OHADA area. One of the main innovations was the introduction of the “Société par actions simplifiée”, or simplified joint stock company, which allows shareholders greater freedom in structuring their partnership and portfolio company investments. Additionally, the revised Uniform Act brought major innovations relating to securities, which greatly benefit private equity funds. Some examples include the ability to: (i) create preferred shares which can be issued without voting rights, with double voting rights, with suspension of voting rights for a specified period of time, or with a preferred dividend and so forth; and (ii) provide access to capital through the creation of securities or entitling the allocation of debt instruments, which opens up greater funding opportunities, in addition to common equity, for firms incorporated in the OHADA area.

With the increased global focus on Africa, what are some of the issues managers and investors should be aware of when looking to invest for the first time?

One of the main issues faced by clients investing in Africa is the efficient transfer of the proceeds of their investments, in particular the proceeds of sales. There is typically no issue when transfers take place between the Euro zone and the CFA Franc zone. Moreover, as the latter is indexed to the Euro at a fixed rate, there is absolutely no exchange rate risk. Things can prove to be more complicated in North African countries which have foreign exchange control regulations that are much more restrictive than those found in the CFA Franc zone. For other types of transfers, such as dividends and management fees, one must comply with legislation in force (e.g. domiciling service contracts, holding shareholders meetings to approve annual accounts and allocating profits within the time limits prescribed by law).

From a tax perspective, capital gains tax arising from sales of interests in portfolio companies can be an issue, but we find in this respect that the strengthening of the double tax treaties network of African French-speaking countries has allowed a gradual improvement in the profitability of foreign investments by reducing cases of double taxation (wide double tax treaties network with France, and expanding with Mauritius and Morocco).

How have you seen the tax environments in French-speaking Africa change, and are they becoming more efficient from a private sector investment perspective?

In general, we have noticed that, although the tax rules are evolving towards a strengthening of anti-abuse and anti-tax avoidance systems, local tax authorities are becoming more and more aware of international practices. This helps enormously to facilitate effective discussions between the authorities and our clients. In addition, several countries have formalised the possibility for taxpayers to request a tax ruling to validate the regime applicable to a given scheme. While in some cases it is too early to truly appreciate the positive impact this may have due to some practical implementation issues, it certainly contributes to helping secure transactions made by foreign and local investors. 

In relation to private equity in particular, we are seeing tax rules introduced in support of private investment, notably under the lead of the West African Economic and Monetary Union (WAEMU), which has issued several directives which harmonise the taxation applicable to securities among WAEMU members and the taxation applicable to closed-end investment companies within the WAEMU. 

These rules have been implemented in various countries, notably Senegal, Benin and Togo, and provide favourable tax regimes (e.g. exemptions from corporate income tax, exemption from tax on capital gains derived from the sale of securities) for listed and unlisted investments to stimulate regional financial stock markets and offer alternative ways of financing the economy. We believe that this type of legislation, combined with the recent Uniform Act developments, will encourage the emergence of additional local investment funds.

*OHADA is a system of business laws and implementing institutions adopted by 17 countries in West and Central Africa. It is the French acronym for "Organisation pour l'Harmonisation en Afrique du Droit des Affaires", which translates into English as "Organisation for the Harmonization of Business Law in Africa".

Interview sourced from Frontier's content partner, African Venture Capital and Private Equity Association (AVCA)