Book review: Poorly Made In China

Poorly Made in China by Paul Midler was one of the Economist’s best books of the year for 2009 and two years later it remains a subject for discussion among people who manufacture in China. I have a copy of it but had not picked it up until recently when one of my customers read it and asked me about it.

I have mixed feelings about Poorly Made In China. In some ways it is a very useful book because it illustrates quite well what a difficult place China can be to do business. I get emails frequently from prospective customers who are going through what Midler describes. And I have had these experiences myself, dealing with vendors who just fail to comprehend the long-term mutually beneficial nature of the relationship you are trying to forge, but who are instead focused only on cost-cutting and short-term profits. It is aggravating to say the least.

Still, I do question some of Midler’s experiences in China, raise my eyebrows at how he handled certain situations and ask myself why the US company he was working for would persevere in a relationship with such a problematic, corrupt vendor. My experience is that if you begin to have problems with a vendor – and I mean serious problems like Midler’s client was having with its Chinese vendor  e.g. widespread quality issues, rampant dishonesty, a refusal to accept responsibility – then you start looking for a new vendor, and ASAP. Midler’s advice to his client, on the other hand, was always to give the vendor the benefit of the doubt. Eventually the relationship soured. Midler’s client was looking for a new factory and  Midler was looking for a new client.

In another section of the book, Midler receives a price quote from a vendor, and passes this quote on to his customer. When the customer shows up in China to negotiate a contract, the vendor raises the cost substantially telling Midler that he misunderstood the quote which, as it turns out, Midler never had in writing to begin with. That fact that Midler passed on to his customer an important quote that he had received only verbally makes one wonder.

Midler’s take on the Canton Fair is also off the mark. He says that one of the big problems with the fair is that vendor costs are arbitrary and often discriminatory, changing depending on who is the buyer. Of course this is the case.  This is China.  Business ethics that are taught in the West simply do not apply in China, and that is why it can be such a difficult place to do business. Midler grasps this – obviously – but he cannot accept China on its own terms. I would add that the barter-like negotiating at the Canton Fair is not an issue if you have target costs in mind. Vendors either meet your costs or don’t.  On the fair he writes further: “Experienced traders were largely of the opinion that the trade show was for suckers.”  The truth is that many companies – small importers and established publicly traded companies – attend this show regularly and it remains one of the largest trade shows in the world. Even savvy Hong Kong traders show up at the fair looking for mainland suppliers. Short of a referral from a trusted friend or acquaintance, the Canton Fair  is the single best place  to meet vendors in China.  About the fair, Midler elaborates  “I actually enjoyed the fair and attended whenever possible.”  Go figure.

Still, I would recommend “Poorly Made In China” to people who are doing business in China because it does paint a very accurate picture of how difficult it can be to manufacture there. I would qualify my recommendation by pointing out that there are, nevertheless, good vendors in China ( Midler makes it sound as if there are none). It just takes time to find them.

Here are some other book reviews:

One Billion Customers
The China Price
China Shakes the World
The End of Cheap China

The meaning of the fake Apple store

I enjoyed the story about the fake Apple stores in Kunming, China. My first thought was what them took so long to find out about these stores ( it turns out there were a few of them in Kunming). The story was initially brought to light by a local blogger who just happened upon one of the stores while out and about on his bicycle. This gives you an idea of how insulated from the outside world some of China’s big cities still are. Kunming, after all, is not exactly off the beaten path. The story also brings back fond memories of my early days in Shanghai and a fake McDonald’s restaurant that sprang up on Huai Hai Rd in Shanghai in the summer of 1993. It became something of “must –see” attraction for all the ex-pats who lived in Shanghai then ( FYI the first McDonald’s actually opened in Beijing in the summer of 1993). The Golden Arches had been slightly altered so that the M looked more like an N and the official name of the restaurant was “Nancy’s” But there was no mistake about what effect the owner was trying to achieve.

The fakes though are something you really have to watch out for if you do business in China, whether as a big multi-national company or a small importer in the Midwest.

A case in point is YKK zippers. According to YKK’s official website fake YKK zippers are a big problem worldwide nowadays. YKK even has a separate page on their website which addresses the issue.I know about this because I am working now on samples for a customer who wants YKK zippers on her product. She has used generic Chinese zippers up until now but they break easily and, for this reason, she wants to move to YKK zippers. A couple of vendors had quoted me extremely high costs for YKK zippers & pullers – $ 3.00-4.00 which has me asking myself how can you be sure that what you are paying a premium price for is, in fact, the real thing ? Sometimes Chinese fakes are so good that it is virtually impossible to tell the difference between the authentic and the counterfeit. So how does one deal with a problem like this? There are 2 ways I think:

1.) Provide the vendor with your own YKK zippers. One can buy from YKK directly or source within China from an accredited YKK distributor. You can also tell the vendor to buy directly from a source you provide them with.
2.) Discuss the problem with the vendor and ask them to provide receipts from their zipper supplier. You can then check to see if their supplier is a verified YKK supplier.

In short, this is just another reason is why doing business in China can be so challenging and why it is very important to have a relationship with your vendor in which you can discuss these issues in an open and friendly manner.

How to prevent price increases and quality fades

I have been working with some new bag factories on a project for a Canadian customer and one of the factories has shown a tendency to increase prices. My customer is a little worried about this. She writes:

“My concern would be that I would encounter the same issue I had with my current factory, which is they might give me a satisfactory target price to start with but then subsequent runs would just go through the roof, sending me back to the drawing board with manufacturers. I wonder whether I will need to continuously be sourcing new factories and taking a risk every time I do a production run with a new factory”

This is a good question as price increases are all too common when doing business in China. Some price increases are to be expected given the rising raw materials costs in China over the last couple of years. However, steep and frequent price increases are unwarranted. I have seen the following scenario many times

• First order: Small QTY order goes great. Customer is very happy.
• Second order: QTY on order is increased by customer. Vendor’s cost goes up. There are quality issues.
• Third order: QTY on order is increased by customer. Price goes up further. General quality fade and sporadic serious quality issues.
• Customer looks for new vendor.

How does one prevent this ? There are a few ways I think as follows:

1.) Develop a relationship with your vendor that allows you to talk on friendly terms and openly about price increases and or/production issues. If you are not showing up in China occasionally to visit your vendor and take your relationship with them to the next level, then they will not hesitate to increase your costs. Your absence signifies a lack of concern about both quality and cost and your vendor will likely regard you as just another foreign customer who is trying to profit from China’s cheap labor. On the other hand, if you spend time with your vendor in China you show your vendor you are serious about your business and take cost increases seriously.

2.) Have a few back-up vendors and don’t be afraid to use them. If you let your vendor know that you are prepared to work with another factory that can offer more favorable pricing they may call your bluff and hold firm on their prices. When you do leave, they will make every effort to get you back. I have seen this happen.

3.) Invite your vendor to spend a week at your company. Take them to the large retail stores or malls to illustrate for them how competitive the North American market is. Many vendors are absolutely overwhelmed at the size of US & Canadian retail stores and the variety of product because China’s malls and shopping centers, in comparison to those in the US and Canada, are dinky. If your vendor better understands the issues you face in your own market they will do more to keep prices within your target in China. They will also place renewed interest in their relationship with you once they see that you are their conduit to a potentially profitable overseas market.

In short, if you want to keep prices in line you really need to work on developing a relationship with your vendor. If you are just another customer to them then you can expect to see price increases regularly.