Even for locals, China is a difficult place to do business

When I was in Shanghai last month I had a very interesting conversation with an old colleague/friend of mine, “Jessie.”  Jessie used to be the Controller for a large US home textiles company, where she worked for about 15 years.  I worked for the same company in their Shanghai office and that is where we got to know each other and became friends. I have known Jessie for about 15 years now. 

Since leaving the home textiles company in 2008 Jessie has gone out on her own. She is currently sourcing for US companies in China, and is working closely with one of our former bosses who has started up a new children’s home textiles line.  As if that were not enough to keep her busy,  Jessie is also working with an American investment company in the SF Bay Area that is seeking to bring Chinese investment to the US. 

Jessie is one of the most dynamic Chinese businesswomen I have ever met and whenever I go to Shanghai and spend a day with her I learn a lot about doing business in China. She knows as much about China consumer goods manufacturing as anyone and, more valuably, she can give me the local perspective.  This time when I visited her we talked about how to select factories and manage production because this is something we both do right now.  I guess I was somewhat surprised to hear that even Jessie has problems here, simply because she used to do such a great job selecting and managing factories when we were in home textiles.  But she does have problems – mainly with quality – and she told me that she needs to constantly visit and monitor her vendors. This, she emphasized, is the only way to control quality.  And listening to Jessie over the course of the day I spent with her, I realized that she is on the road a great deal, visiting a factory in Fujian one week and one in Zhejiang the next week.  If she doesn’t do it herself, then she sends someone from her office. 

Over the past year I have been approached by many companies who have problems in China but yet who never spend any time there.  I have said this over and over again, but you have to spend time with the vendor if you want them to get things right.  Because China is just not an easy place to do business. Not for anyone. Not even for the Chinese.

What happens when you pick the wrong vendor; a cautionary tale

I recieved a report from my customer who sent me to Zhejiang Province a few weeks ago to check on production of one of her orders.  The report has a lot of entertainment value in it but, more importantly, it illustrates what can happen when you partner with the wrong vendor.  She has graciously allowed me to post it here. Enjoy !

Well folks here is how it all went down today. Actually we should go back to last night. When we arrived at the factory Tuesday afternoon late, as Sam had predicted, there was very little product for us to inspect. Tom ( the agent who managed the order) threw out excuses and tried to change the subject – a specialty of his – so we did inspect what we could. We did not find anything sellable in the items we reviewed. We saw the writing on the wall. He said the other styles were at some other factories being made because the time was short. We told him that we would be there first thing in the morning to begin inspecting everything – so he needed to have “hundreds” of each style there first thing in the morning as we would need all day to review so much product. 

We would not go to dinner with him – we went back to the hotel and got our own dinner and discussed the options that laid before us.

*Should we have them continue with production and hurry to make the Sept. 15 port date?

*Could they make that date since they were so far behind already AND they had not yet even booked the shipment and we were 1 day past the 10 days required for an LCL?

 *If they had to hurry would quality further deteriorate?

*Since we had not seen one single good product yet, did we expect to see any good product at all? 

Product quality issues:

  • Off center emblems
  • Off center care labels
  • Care labels sewn so that sewing cut into the label information
  • Terrible top-stitching around the neck
  • China silk lining sagging below the  bottom hemline
  • Twisty necklines
  • Poorly sewn Velcro closures
  • No ironing
  • Raw china silk edges where the turned opening was topstitched closed

We told Tom these things were UNACCEPTABLE and that we would have to sort through hundreds of items tomorrow to see if we were finding any percentage that were sellable. 

Tomorrow came. We had decided the previous evening that there was not time to fix anything and indeed, they were not fixable. The whole lot needed to be thrown out and started again.  We wanted our patterns back, so we determined to get them. We went to the factory at about 9:30 so that they would have plenty of  time to get up and eat and be ready to hear what we were going to tell them. We walked over to the factory and up the stairs to the sample room where Tom met us. We told him that we wanted our patterns brought in from the design room. He said “OK just a minute ” and he left the room in the opposite direction …We waited about a minute and a half then we got up and went into the design room ourselves and asked the women for our patterns. They went and pulled them out from under a pile and we walked into the show room with them and divided them into two piles and rolled them up. Tom had come in by this time and asked if we were taking our patterns. We said we were – that they had not been able to get them right and we needed to take them to our factory in Shenzhen for production as we could not delay any longer. He started to discuss this at length  for a short while, but we cut him off and told him that we had discussed the situation at dinner last night and we were very sorry it had come to this, but we were cancelling the order. He had not fulfilled any of his obligations to us and the time had run out. We reminded him of his promised procedure;

  1. Upon receipt of  purchase order fabric would be ordered and fabric samples sent to us for our approval
  2. Pre-production samples would be sent
  3. Mid-production samples would be sent
  4. A visit could be made by us at completion to approve the product. If we are not happy then we can reject the order and they will try to fix if they can. 

We had to remind him that we only got fabric samples for approval after asking many many times. We NEVER got pre-production samples in spite of multiple requests for them.  We SENT our friend Sam to inspect end production, which actually ended up being MID_ PRODUCTION since they were so far behind schedule. THIS was the product completion visit for final approval and we were in fact NOT approving the production, we were rejecting it as was our right since the product was not good at all. 

We reminded him that he only had 300 pieces of 21000 pieces ready for Sam to review and that those had just been thrown out on top of  another order pile so it would look like they were working on our order. Sam took pictures of this and had sent them to us.  Then we expressed our shock at having no product available for our inspection after we had given them 2 weeks notice that we would be there and then we traveled 6000 miles at great time and expense to inspect the shipment.  We expressed our additional shock at arriving for inspection that morning and STILL having no product to inspect. He said he would have some there for us this afternoon. We told him it was too late, that we were rejecting the order and leaving. We picked up our pattern tubes and walked out. 

Tom followed us down the street begging us to sit down and discuss a solution. We said that we were done discussing.  We should inject here that he had no solutions to suggest to us. His solution was  “we think they are not so bad and you can sell them”.  

We walked into the hotel  with Tom following us.  We left him in the lobby as we went to our rooms.

We went up to our room and sorted the patterns and rolled them up well and began packing our suitcases to leave.  Then our room door bell rang.  We saw Tom at the door, so we just ignored the bell. He waited a while and then rang again. And again. We just finished packing and left when we were ready – and he was there in the hallway waiting for us.   He followed us down to the lobby telling us we should sit down and discuss this. We said no. We asked the hotel ladies to call our taxi for us as we were ready to leave.  We should stop here a minute and tell you that we had planned our “escape” earlier in the morning. We went onto Google translate and typed in the question “do you know a dependable person who we can hire as a driver to take us to Yiwu at noon?”  Google translater put  the phrase in Chinese characters and we showed it to the front desk. We explained that we did not want to be in Yiwu at noon, we wanted to leave for Yiwu at noon.  Kathy had enough broken Mandarin to get that point across. They said no problem.  We had also gone online and booked a hotel in Yiwu and had the address sent to us in Chinese .

When  we went down to the lobby with Tom  following us we asked the ladies to call our taxi for us and Tom told them not to. They were rather frightened and unsure what to do. So, we called Candy and told her to tell them in no uncertain terms that they were to call our taxi NOW and then we gave the phone to the lady for Candy to relay the information. When we got the phone back from the lady Candy told us that the lady said it would take 1 hour for the taxi to get there, where upon Kathy put her powerful pointer finger on the counter and said “NOT ONE HOUR! XIANZAI! XIANZAI! XIANZAI!  (right now, right now, right now) Kelly got back on with Candy and explained that the factory did not want us to leave and were telling the women at the hotel to delay us and that they were not to do that. Then they told us the taxi would be there in 10 minutes. 

Tom said we should sit down and discuss a solution (for the 100th time)  Kathy said “you have ten minutes until the taxi arrives – give me your best solution” Tom’s  reply?…”.we think they are not so bad, you can sell them. “  Then he laid our sample and two of their samples on the floor to compare. One of the samples was clearly unacceptable. . The other not too bad.  We said, “well if you’d had the product at the factory last night we could have begun sorting out the good from the bad and worked at it all day. Maybe we would have been able to salvage some of the order – as it is – you did not have samples for Sam to review, you do not have samples for  us to review and we are not buying something we can’t see. 

He said “this is very disrespectful to us” – we said “ let us tell you about who is disrespecting who – we gave you an order, we paid you a 30% deposit promptly, we requested our promised samples, we came to inspect our product and you have repeatedly lied to us, shoved us to the bottom of the production schedule, wasted our time and our money. It is over. 

He followed us out to the taxi and as we climbed in and closed the doors he put his head in the taxi window and said, “we should sit down and talk about a solution.”  ( those is a phrase he uses often)  He said “we will take you to Yiwu” – we told him it was not necessary and that if  he had a good solution,he should  send us an email.”  He said, “you are very angry now, we will come up with a solution.” 

Then we left.  Windows down and the warm China breeze blowing through our hair – off to the Yiwu Kingdom Hotel.  And we had a female taxi driver. We liked that. 

We are safely tucked into the Yiwu Kingdom Hotel. We have eaten and are looking forward to our arrival in Shenzhen tomorrow.

 We wish you all could have been there.

Cost should not be the most important factor in vendor selection

I had a conversation on the phone last night with the client  who sent me to Zhejiang recently to check on her production. She just arrived at the FTY yesterday with a colleague and told me that the problems I had outlined in my report are exactly as they found.  She is at the crossroads whether to accept the order late or just cancel it altogether.  Either way, this order of seasonal product will result in significant lost sales for her company.

The lesson to be learned here is that it is not always a good idea to partner with the FTY that gives you the lowest price, what had been one of the main selling points for this particular FTY.  Equally important factors are quality, timely delivery and communication ( in all fairness to my customer, the vendor’s communication had been pretty good and this was one reason she had decided to give them some business ).  Of course, you can never be sure of a vendor’s reliability until you have done some orders with them, but a rigorous sample order or small pilot order – time permitting – should at least give you an indication of what they are like to work with and whether they can deliver a quality product to you without significant hiccups in a short time.  In fact, I would say the best business decision is to select a supplier who can do this even if their prices are higher than the competition. My reasoning is simple:  if you can’t get quality product to your customers on time it doesn’t matter how cheap it is;  you will lose sales.

This is what I have advised another customer of mine who is grappling with price increases from her vendor. The prices the vendor is quoting her are high and becoming higher with each order she puts in; for her latest order the vendor’s prices are double the quotations I received from other vendors for the same product. Yet my customer admits that her current vendor always makes good on their delivery dates and replaces defective product at no cost to her. Overall quality of the product is good. For this reason, I have advised her to accentuate the positive with her current vendor – good lead time and quality – and at the same time to begin ASAP developing a couple of back up suppliers. The idea is to find a few vendors who are 85-90% as competent as her current supplier in lead time and quality but who are significantly cheaper and to gradually move production to the new vendors so that the current high-priced vendor at some point assumes a back-up role.

One has to remember constantly that doing business in China is as much about strategy as it is about price. The best strategy is to evaluate a relationship with a potential vendor from all angles:  cost; quality; lead time and communication/customer service.  If you are solely focused on low cost, aka “the China price”  then you risk losing sales and, more importantly, your customers.