When you do business in China it is important to see your China vendor as your equal not as your subordinate. You should never unload excessive demands on them or at any point consider that you call all the shots in the relationship. If you consider that your China vendor probably has many customers while you may have only one or two suppliers it is not unreasonable to say that you need them more than they need you. Yet many overseas companies that do business in China expect vendors to be at their beck and call. While this attitude may have been acceptable at one time it is no longer the right attitude to have when doing business in China.
A case in point is a vendor I approached at the recent Canton Fair. I have a major project and I gave the vendor a good number of items to quote on. Some of the items I had samples for and submitted them to the vendor and some I had only specs for . After I returned to Tokyo I followed up with the vendor to see where they were on quotes but they only gave me costs on about 2/3 of the items I had asked them to quote on. Knowing that this vendor is extremely busy (they attended phases 2 and 3 of the fair and probably had between 100-200 customers to follow up with) and that I was only able to give them actual samples for some of the products I was happy that I got the costs I did, although my customer wanted costs on everything. I also felt that what they had given to me was sufficient to see where they were on pricing while pushing them to quote on everything ( including all the items I had not given them samples for) would only have created extra work for them at what must be a very busy time. By choosing not to pursue them on this matter – other than a brief email asking them when I could expect to see all the quotes – I am being respectful of a vendor that I may want to deal with later. If you give a vendor any sense you are difficult to work with or don’t respect their time ( by pushing them to quote on items without providing them with a sample) then they will not take your business. In China nowadays many vendors don’t need it.
When I was in Shenzhen last month I took a day trip out to an area outside of Shenzhen were most China factories buy their raw materials. When, for example, a factory in Shantou makes coffee mugs for a US importer this is where they come to get their raw materials. The place is huge and you can see anything and everything there – in its raw material state. There are separate areas, for textiles, glass, metals, plastics etc etc. I was here with a vendor looking for PP for a project I am working on now. It was very interesting to see that a lot raw plastics (polymers) are coming into China from places like, Thailand, Korea, Vietnam and even Taiwan. Chances are that if you have a resin product in your line it is made with a fluff (polymer) and additive from one of these places although the product label will say “Made in China.” When I asked the vendor about this he replied to me that there is a stronger environmental movement nowadays in China so vendors must source these materials abroad. I think this is part of the reason as Chinese local govts particularly in South China are becoming ever mindful of industrial waste. But I am sure there are other reasons as well, mainly having to do with cost. The vendor went on to say that China’s advantage is its abundant labor pool, factory capacity and state of the art machinery. But the actual raw materials are often cheaper in developed countries.
Anyway, the next time I hear from a supplier about the rising costs of raw materials in China, I will believe them. It was a fascinating visit to a fascinating place.
Every time I go to China I am amazed how much is going on there: the new buildings, the new transportation, fancy new restaurants, cosmopolitan fashion, New York and Tokyo like prices. This time was no different. However, I really took notice of the development this time because on my second night in Guangzhou, while I was flipping through the channels on the TV, I chanced upon a documentary about Nixon’s visit to China in February 1972. The documentary entitled “Assignment China” was produced by the USC film school and talks about media coverage in China during Nixon’s visit. But it is also about China 40 years ago. The change in China from then to now is remarkable.
The following morning while I was looking out my hotel window I counted nine construction cranes. In fact this has become something of a pastime of mine, counting the construction cranes that are visible outside hotel windows in China. My record is over 30, I think 38 – outside a hotel in Shanghai about 10 years ago. But the construction is still going on. It just does not seem to let up. As I was looking out the window I saw a car back up on the freeway. The driver had gotten off the wrong exit but rather than just get off at the next exit and turn back, he/she had decided to back up on the shoulder of the freeway. I stayed there to watch this drama until I was sure the car had made it back safely. There was much irony in this scene I thought, the cityscape so progressive while ordinary citizens sometimes exhibit very backward attitudes (no pun intended).
Looking out the window at Guangzhou, the Nixon documentary and haphazard automobile fresh in my mind, I realized that 40 years later China’s development, to use a baseball metaphor, is still in the middle innings. After all there are still many mega cities in China that have not been touched by development. It is just so exciting to witness what is happening in China, what Henry Kissinger refers to as one of the “miracles” of our time. If you are a small business don’t let anyone tell you there is any place but China to source your product. And it will probably be like this for many years to come.
I had an email from a customer today and he attached some pics of an order he has received from a vendor in South Eastern China. All the master cartons were crushed and heavily damaged. Fortunately the contents of the package were soft goods and intact and I imagine he was able to salvage most if not all of the order. Seeing the damage to his order at a time when he is considering moving his retail packaging to China ( he is doing it in the US now) makes him nervous and he expressed this to me as follows:
“This why I am a little hesitant of packaging in China. It would have been devastating to have them ( products) fully packaged and damaged as they are in the pics.”
Packaging is sometimes just as important as product. If your product arrives damaged because of shoddy packaging then you cannot sell it. It is worthless. To avoid this it is always a good idea to discuss packaging at length with your suppliers. Always ask them to send you a swatch of the grade of master carton they plan to use. Many vendors in China will use the cheapest cardboard they can find, usually 3 ply or recycled cardboard which tears like paper and will not hold up over a month in an ocean container laden with moisture. Product will be easily damaged if shipped in cartons like this. You should always specify to your vendors the quality of master cartons that you want them to use ( 5 ply, non-recycled is the best). It is a good idea to send them a swatch and ask them to source it. You may have to pay extra for a higher quality master carton but it is worth it, I would think, to avoid situations like the one my customer has just encountered. You should also make sure the vendor puts enough desiccant in the container, and in all 4 corners of the container. These containers pick up an incredible amount of moisture in the 4 -6 weeks it takes your product to get from the FTY to you distribution center. You really have to anticipate this when you work out the details of your order with your supplier. Do not neglect packaging. If you do then you may find you have nothing to deliver to your customers.
I just returned from the Canton Fair. Everyone seemed to think business was really down from a year ago. And with the exception of the second day of the fair which was extremely busy, my impression as well was that things at the show were very slow. You could walk down some of the aisles at the rear of the halls – where most of the small vendors are located – and the gloom was palpable. The stories in the news these days about slow growth in China seem to be true ( though the slow growth is mainly in the domestic market).
One thing I am frequently asked is why I attend the Canton Fair and not the Hong Kong sourcing fair which is held at the same time. The answer is size and cost. The Canton Fair is far larger in scale than the Hong Kong fair and, needless to say, there is a greater likelihood of finding what you are looking for if there are more vendors, even though you have to weed through many undesirable vendors. At the same time you have to take into account that there are bad vendors in at the Hong Kong show as well. I have worked with some.
The second reason I prefer the Canton Fair to the Hong Kong fair is cost. I talked to one Australian lady I have run into several times at the Canton Fair and asked her about Canton vis-à-vis Hong Kong since she regularly attends both fairs. She replied that she often sees the same items in Hong Kong that she sees in Canton but at a much higher cost. She elaborated that the Canton Fair is definitely “down and dirty” compared with Hong Kong but that there are good vendors to be met. For her business – gifts – she needs to source at Canton to keep her margins. She goes to Hong Kong for design.
In fact, I asked several overseas buyers I know who attend both the Canton and the Hong Kong fairs to share their thoughts with me. The consensus was that Hong Kong has more design driven and innovative product than Canton and that it is a more professional fair ( all vendors have catalogs whereas at Canton many do not ) but unless you are selling direct to the end consumer it is hard to absorb the cost markups. For wholesalers the Canton Fair is essential. When I asked if they could only go to one fair which it would be, everyone unhesitatingly replied Canton.
One interesting aside on this blog post: The Australian lady mentioned above told me that more and more Australian companies are attending the Canton fair so her market back home is becoming increasingly competitive. Austrailia after all is a relatively small market. She sees the need going forward to start attending other fairs in Asia in order to stay one step ahead of her competition.