Chinese Manufacturing Solutions Blog

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10 Red Flags Your China Supplier Is Going Bankrupt

Mar 1, 2019

 

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Experienced a factory abruptly closing in China? This may be your chance… The downturn is real. Environmental regulation enforcement, over capacity, competition, and just plain old lack of demand are all driving this trend. It requires some diligence to know if your China supplier is in trouble. Time to make a visit… Here are 10 red flags your China supplier is going bankrupt.

1) Excess capacity

Excess manufacturing capacity is often one of the first signs that a factory is headed toward closure. Orders are down, and there is no indication of when that may improve. Does your factory have significant excess capacity for a prolonged period of time?

2) Poor lead times

Are lead times causing you to lose sales because you don’t have the product on time? Is the factory having cash flow issues? Is the factory delaying payments to their suppliers causing delays in the supply chain? Pre-production inspections can shed light on these issues.

3) Layoffs occur before the Chinese New Year

Losing 10-20% of its workforce after Chinese New Year is typical for a factory. After a few years of working, factory workers often have had enough and move back to their hometowns after they get their Chinese New Year bonus. If, however, you catch wind that your factory laid off workers before Chinese New Year, it is worth asking why.

4) Workers aren’t being paid

If you find workers aren’t being paid it is an early warning signal of trouble. Walk the floor and ask workers (from the person sweeping on up to managerial levels) how they are doing. If they have not been paid it would be rare that they would not take the chance to let you know.

5) Turnover has been rising for weeks

Are you suddenly dealing with new people? Why so many new faces?

6) New payment terms

If the terms you agreed to years ago suddenly change, cash flow may be a concern.

7) Quality is slipping

It could be employee turnover, cost cutting, or simply distracted management. Regardless of the reason it is important to get your arms around the issues. Delve into the root cause.

8) Phone calls and emails go unanswered

If you check the calendar for local holidays, and that is not the reason, then get someone into the factory to find out why.

9) Factory abruptly changes location

Is this an attempt to dodge liabilities or cut costs? Visit the new facilities and talk to the workers to hear their version.

10) High customer complaints

Hearing complaints from a number of the factory’s clients about poor quality, late shipments, and changes of personnel? A good place to look are job boards, where former employees can voice their concerns.

Get the infographic for the rest.

Factories going bankrupt in China is trending. These ten signs aren’t the only ones. We have eight more to share with you—download the infographic to get eight more red flags your supplier is in trouble.

Topics: Manufacturing, Risk Management