The paradox of China sourcing

When people who want to source in China come to me I always have to give them some contradictory advice.

1.) When starting out with a new vendor, make your orders as small as possible. China production is so tricky and you can easily run your business into the ground on one bad order so you need to test vendors before you give them a substantial part of your business. Think of the process of first time sourcing in China as dating. You start out small, say, a pizza and then maybe a little nicer, say, three star restaurant on the second date and finally if all is looking positive you can set your sights on a Michelin restaurant ( if you can afford one. I can’t ). Nothing but pure common sense here.

2.) Make your orders attractive for your vendors so they want to do them. I always tell people that they should not do business with vendors who do not show enthusiasm for their customer’s business. The first thing a vendor will look at is your order QTYs. So you need to look at your business and make the order as large as possible to satisfy vendors while not assuming substantial and unnecessary risk on your side. And this is the paradox: You have to think small and large at the same time.

So how can you think big and small at the same time ? Here are some useful hints:

1.) To make up for what might be perceived as small QTYs from your vendor you should limit your QC points to only the most critical ones. Vendors do not want small QTY, low-margin orders with a lot of QC points. Orders like this are a headache for vendors. Think of yourself as selling your business to your prospective vendors and not just approaching them, as some overseas buyers are wont to do, with the mindset that China vendors always want your business.

2.) If you meet face-to-face with your prospective vendors they will be more inclined to accept a small order from you and work to deliver it to your satisfaction. This involves going to a trade show in China or putting together a list of several vendors you have met online and going to visit them in one fell swoop. Once again you need to understand that China sourcing in 2013 is unlike China sourcing 20 or 30 years ago. Vendors nowadays will turn away as many orders as they accept. If you make an effort to meet with vendors, and tell them that you have a growing business and want to start out small with them they will probably react in a positive way. After all your visit in itself is as good an indication as any of your seriousness of purpose. Compare this method of courtship ( that is really how you have to see China sourcing nowadays) with that of someone who simply sends a vendor an email inquiry about a small order. One of you will get a date while the other will not.

3.)As best as you can try to avoid a scenario where you have to give an untested vendor an important order. Your important orders should be given to vendors who have already been tested so to speak. Try and have several vendors in place before your business gets too big.

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Book Review: On China by Henry Kissinger

After reading On China I am a little more skeptical about the conventional wisdom that declining age brings about a corresponding decline in ones mental faculties. Henry Kissinger wrote On China in his mid 80s and the book was published two years ago when Kissinger was 88. Kissinger just turned 90 this past spring.

There is no trace of an enfeebled mind in On China. It is a wonderful book, elegantly written with penetrating analysis and breathtaking in its scope. It is a book about how China has seen itself and the world beyond its borders over the past three hundred years. Kissinger looks particularly at diplomatic missions to China and China’s response to those missions from the 18th Century up to the present day. That is a lot of ground to cover but Kissinger is able to highlight the important detail so that we feel informed even though we may not know everything. Kissinger’s recounting of the early missions to China by Lord Macartney, for example, is skillful. This is no mean feat as this period is sometimes very difficult to comprehend because of all the global players who looked at China, saw gold and laid their claims, often with brutal force, at the feet of the archaic Qing Government.

And as with China’s distant history so with the more recent, post revolution history. Kissinger is able to look at complicated relationships e.g. China’s relationship with the Soviet Union and bring the reader to a clear understanding of why China was at odds with neighboring and/or western countries, adding chronology or detail only when necessary.

Sometimes though the strength of the book is also its weakness. When Kissinger discusses his and President Nixon’s own trips to China he focuses on the diplomatic achievements only and there is no sense of the drama of these visits. How he or Nixon felt when a US President stepped onto Chinese soil for the first time is not related here. Nor does Kissinger talk much about Nixon’s first meeting with Mao, a meeting, it is often said, where Mao had to be drugged and propped up so he would be able to physically meet Nixon. Nixon was also said to have taken a liking to Chinese “bai jiu” the feared and infamous Chinese liquor that is served at banquets. Nixon enjoyed bai jiu so much that he kept a small bottle of it in the Oval Office. The book, although wonderful as it is, might have been even better had Kissinger included these superfluous, but nevertheless interesting and colorful details.

Maybe the most interesting part of the book is that section which deals with the intense negotiations to get the Chinese Physicist and Dissident, Fang Li Zhi out of China. This is a story about how one individual almost destroyed decades of relationship building and how only the commitment of both the China and US sides to keep the relationship moving ahead eventually prevented this from happening.

Although his focus in On China is diplomacy Kissinger does not fail to see and applaud China’s economic miracle. And who would know better than Kissinger who has made fifty trips to China over the past 40 years. When Kissinger first went to China, as he himself tells us, only 0.87% of the workforce had a college education. Nowadays China’s workforce is decidedly sophisticated and educated, especially in the big cities. For China and for the world at large, this is a good thing. And this is Kissinger’s ultimate message in On China, that although China’s ideology may be different from that of other countries, its leadership has the same goal, to improve the standard of living for its citizenry.

On China is a positive affirmation of China. And, at least in Henry Kissinger’s case, it is also an affirmation that age is no obstacle to achievement.

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Negotiating a return of your deposit from your China vendor

I just had a vendor cancel an order on a client of mine. There had been problems with the order and the vendor came to the realization that they could not sustain my client’s quality over a 10.000 pc order. So they gave up. Just like that. Done. Finished.

We went into this order looking at it as a “test” order. Of course we were hoping it would go well because the vendor did provide what my client had exclaimed were “great” samples. Yet alongside the hope was the consistent expectation that it just might not work out, because my client’s standards are very high ( as she says herself this product is not “el cheapo.” ) and we were not there to oversee production. As I do with anyone who comes to me asking me to help them source in China, I had strongly advised my client to get over there, or to send me or someone else but she did not have it in her budget to do this. Anytime you are doing an order with a first time vendor in China, you need to be there. Period. Yet no matter how much I say this many companies I work with just don’t seem like they want to be bothered, mainly because it costs a lot to get on a plane and spend a week or two in China. Or maybe they don’t like Chinese food. I don’t know. But lost sales and customers cost more I always tell them.

My client now, wants her deposit back. It is a very small deposit, so small that even I was surprised when she said she wanted me to ask the vendor to return it. But my client says she is acting on principal here. Because the vendor cancelled the order, they should return the deposit. I somewhat agree with her on this, although the vendor did make a solid effort to complete the order to my client’s satisfaction and I cannot say everything was the vendor’s fault. At the same time, I told my client that it was unlikely the vendor would return the deposit. China vendors are not in the habit of returning deposits especially when they have already put a lot of work into the order, as was the case with this order. The order was about half finished when the vendor gave up. Still my client wanted me to ask. Accordingly I sent the vendor, a lady I have met before and with whom I have over the last year established good rapport, a lengthy, very diplomatic email asking her to please return the deposit.

Things in China must be changing because the vendor agreed to return the deposit even though the order was half finished. This really took me by surprise because I am sure the deposit did not come near to covering the vendor’s expenses on the order. There were the manufacturing costs and then the costs to ship the product from the factory to the vendor’s warehouse, and I just can’t believe that a small deposit covered these costs. It is possible that the vendor just sold the product to another customer of hers. I have no idea. But she acted very honorably in returning my client’s deposit.

Does this mean you will always get your deposit back from a vendor if your order does not go well? Of course not. It means you have to be very careful about selecting vendors in the first place ( I chose this vendor because she seemed sincere) and then you need to establish a good working relationship with them so that when things do go wrong you can expect them to act honorably.

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What China sourcing and building a house have in common

The other day I received an email from a client I helped two years ago. I had found a vendor for this client and things were going well until recently when my client said that he was having some communication and other issues with the factory. This was a vendor I had met at the Canton Fair. All the pre-production samples and vendor communication had been great and the pricing was very good. As my involvement was winding down I advised my client to audit the factory before he gave them an order. Accordingly he had his Hong Kong inspection company go to the factory and they passed it with flying colors. The impression of the Hong Kong inspector – someone very experienced with factory inspections – was that this was a very good factory. The first couple of orders were fine. And then pricing started to go up, which of course is SOP in China ( especially with buyers who sell their products online where retail pricing is in full view of everyone, including vendors in China) And now my client has started to have some unfriendly exchanges with his factory contact, a lady I had met in Canton and who I had a very good impression of.

It is hard to know what is going on here because I no longer work with for this person. He now has a North American based agent with full-time local personnel in China manage his orders. One possibility is that there is a personality clash between the local employee of the agent’s company and the vendor and that this is impacting my former client’s relationship with the vendor. This does happen all the time in China and is one reason you really might not want to use a third-party in your China sourcing.

Another possibility is that the vendor feels slighted because my former client has never visited the factory, but just sends someone else. When you do production in China it is imperative that you show up occasionally, as a sign of respect to your vendor who, in fact, you are asking to help grow your business. Vendors take buyer visits very seriously and no expense is spared in welcoming overseas guests to China. It is not only a chance to show-off modern China to overseas guests, but historically Chinese have relished the opportunity to fete foreign visitors because they feel it can give them the upper hand in negotiations. They want to entertain you. The message you are sending to the vendor if you do not show up, but ask someone else to go for you, is that the vendor is not worthy of your time. It also sends the vendor the message that you do not really care about your business.

Once again I use my house analogy here. Let’s say someone comes to you, the contractor, and asks you to build a house for them. You start building the house but months go by and you never see the person who you are working for. You get emails from them occasionally and every so often someone, say a friend of the person, stops by to see how things are going. But the person himself, who asked you to build the house, never comes by. Are you going to feel an attachment to that person? Probably not.

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The difficulty of factory inspections in China

Factory inspections in Asia are the subject of renewed discussion in the wake of a tragic fire in a Bangladesh textile factory this past summer. And yesterday there was a lengthy article in the NY Times about the inefficiency of factory inspections in China and Bangladesh. The point of the article is that getting vendors to comply with product or labor standards is just as difficult now as ever.

The article details some Wal-Mart experiences in China where extensive inspections failed to stop bad product from getting on the shelves in US stores. If you have read the China Price by Alexandra Harvey ( here is a review The China Price ), a 2008 book which details all the problems Wal-Mart has had in China trying to get its vendors to be compliant with international labor standards, you will come to the conclusion that, no, things are not getting better. It is the same old song and dance with factory audits in China.

I think one of the problems is the concept and structure of the audit itself. Audits are usually done by third party inspectors who schedule their visits with the vendor and then show up for half a day with a checklist in hand. Vendors have plenty of advance notice to clean up and usually they do so. But the clean up is only temporary. As soon as the audit is over, vendors revert to their bad practices. This point is made in the Times article as well as by Harvey. It is also an SOP known to anyone who has done business in China for any length of time.

From my experience, the only way to really know what your vendors are doing is to spend considerable time with them and observe your product being made at every step of the way. We are talking about multiple visits over the course of a production cycle. But of course this is time-consuming and expensive and most small to mid-sized companies simply cannot afford to do this. So they have to rely on quick audits that many vendors either do not take seriously ( if the orders or customer is small), or take seriously enough that they go to great lengths to conceal problems that will allow them to pass the audit ( if the orders are sizeable).

Still, I think you have to look at your business and at your investment in China. If you plan to build your business sourcing out of China for many years to come, then it behooves you to spend time there working with your vendor and coming to an understanding of how they operate, and how extensively they use sub-contractors, one of the big problems that audits sometimes fail to catch and what is so often a source of problems in off-shore manufacturing.

Here is the link to the article.

NY Times Article

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