If a cost is too good to be true, then it probably is not true.

If you approach a new vendor with a project and they give you a cost that seems too good to be true don’t expect you have found your partner in China for life. It is SOP among China vendors to give customers a low cost in order to get their orders. After the first order the cost will go up, sometimes dramatically, much to the customer’s chagrin. Why do vendors do this when they are aware that they may lose their customer ( and please note they are aware of this because I have asked them) ? The reason is that meeting a customer’s cost expectations is perhaps the only way the vendor will get the order. For the first order the vendor may just break even which is fine with them. They will not have lost any money and will have kept the factory busy. Their hope is that after the first order their customers will be so pleased with the quality or delivery that they will accept a price increase and place a second order. But for the overseas company that is sourcing in China and is basing its business going forward on the same low prices they received on the first order, a sudden cost increase can bring their business to a screeching halt. I have seen this happen many times and I would estimate that 30% of my clients come to me for this reason.

So what can you do about this if you are a small business sourcing in China? The answer is nothing. All you can do is be aware that this happens and to make allowance in your retail margins for an anticipated price increase from your first order to your second order. NEVER assume that your second FOB price is going to be as low as the first. If you don’t think this way you may very well find yourself in a situation where you have promised your customers that you will hold your prices only to find that your vendor in China has doubled the prices they are charging to you. You then have a choice to pass on the price increase to your customers, and risk losing them, or having to quickly begin a search for a new vendor which will severely curtail your ability to deliver product to your customer. Another thing you should do is to always have at least one back up vendor so in the event your current vendor suddenly gives you an unworkable cost increase you have someone else to go to.

In short you should think of doing business in China like coaching a football team. When you can anticipate the other team’s plays and draw up your own plays accordingly you will have a better chance of winning.

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The best way to learn Chinese

I always advise people who are doing business in China to learn some Chinese before they go over there. The reasons are two:

1.) It will make their experience in China more enjoyable. Why is this important? Quite simply the more they enjoy China the easier it will be for them to spend time there. And the more time they spend in China the better their relationship with their vendor and the more likely they will be able to deliver better product to their customers back home.

2.) It will gain them the respect of their China vendors. Needless to say, respect is crucial in any kind of partnership, business or otherwise.

The big problem however is that most people are too busy to sit down and begin time consuming study of a very difficult language for which they may have very little motivation to begin with. Of all the people I have worked with over the past few years, I don’t think there were but two individuals who seemed genuinely interested in China. China for most small business owners is simply a country with cheap labor and good infrastructure where they can have their product made for a cost that will allow them to build their business back home. There is absolutely nothing wrong with this but it does pose a problem if you have to spend time in the country in order to teach your suppliers about your product and standards. And make no mistake about it, spending time in China is essential if you are sourcing there and want to grow your business.

I was fortunate that I started to learn Chinese when I was in graduate school. The blockbuster movie that summer was the Last Emperor and there was a China craze in the US which drew my curiosity as well. I had plenty of time to study Chinese since I was in graduate school, not all that interested in my studies and considering other things I might want to do. I got to know some Chinese students, including famed Chinese composer Tan Dun, in the dept where I worked at Columbia University and had the opportunity to spend a summer in China. I then had an a chance a few years later to go live in China where I honed my Chinese skills over seven years. And that is how I learned. And I am still learning.

But of course most small business owners do not have this time or opportunity. So what can they do ?

I think there are four things you must consider if you want to learn Chinese:

1.) Goal

I think the key is limiting expectations about what you can expect to achieve. Learning Chinese while you are trying to run a business is very challenging. Therefore your goal should not be to learn Chinese. It should be to learn some Chinese. In other words focus on some basic words, greetings, phrases, and then maybe some terms that are specific in your industry. Be able to hold short conversations in Chinese, about weather, food etc etc.

2.) Text

There are a lot of bad Chinese textbooks so the selection of a text should be done with care. You should avoid texts that avoid the written Chinese language because part of learning Chinese is learning the written language. Unfortunately there are many books that just provide only Romanization of the Chinese language. For many learners this makes learning Chinese less intimidating and these texts are popular. But you are not really learning Chinese. If you can master how to write and recognize few words, and show appreciation for the Chinese written language, you will score far more points with your vendor, than if you are just able to parrot a few phrases.

3.) Time

Is it realistic to expect to sit down and study Chinese for an hour every day when you run a small business and have a family to take care of ? No. But it is nevertheless important to study everyday, even if only for 30 minutes, maybe during your lunch hour. The point is that learning Chinese is difficult so you have to get into a habit of studying every day, even if only for a limited time. It takes a lot of discipline. But you will not learn without discipline.

4.) Tutor

I think it is very useful to have a private tutor. Tutors will help you with pronunciation, one of the most difficult things about Chinese. Wherever I have lived I have usually employed a tutor or conversation partner. You should be able to find one through your local college or university. In short, tutors are indispensible.

But whatever you do, don’t make the mistake of going to China and not being able to speak some Chinese. If you do that you are going to have a difficult time there. Sure it may seem easy at first. People are all smiles and want your orders. But at some point you are going to have a problem and your inability to communicate will be a major obstacle when you try to solve that problem.

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From the Archives: Sourcing online increases risk

So many people these days use alibaba when they want to find a supplier overseas. And I must say it is easy. Just type in a search word and, lo and behold, you get back pages and pages of vendors who supposedly can make your product. If you are just starting out and a want a rough idea of how much it it might cost to make your product, there is nothing wrong with running your project by a handful of vendors on alibaba. But when it comes time to ordering you would best be advised to get on a plane and go to spend some time with the person (s) you are relying on to build your business. This is due diligence pure and simple. There is just so much risk for your business when you give an order to a vendor you have never met. I would not do it and I always advise my clients not to do it. Here is a blog post I wrote on this subject back in 2011.

Sourcing online

http://www.theeastasiaco.com

If you want to buy a China sourcing “report” for $ 149.00, then there is bridge I want to sell you.

A consultant who works out of Vietnam sent me a link to a download for a guide to sourcing in China and he asked me what I thought of it since the price is cheap, only $ 149.00. The guide is being marketed as guide to qualified suppliers in China. The company behind the guide promises that it can find one qualified suppliers, advise one on necessary inspections and testing and also on shipping rates. I looked over the website and the two people, self styled western “entrepreneurs” who are selling the guide have a combined seven years of experience in China. That is not a long time at all. My friend Andrew and I have a combined 50 years of experience in China. Anyway there are probably many people who are thinking about starting business and want to source in China and look at this and think “ wow, this looks great, and it is only $ 149.00” In fact the consultant who sent it to me I think had the same first impression and that is why he wanted to run it by me. So let’s look at it.

The company promises to find you qualified suppliers in 72 hours. Impossible. There are tens of thousands of suppliers over hundreds of industries in China. It takes a while to find qualified suppliers. It can take years. Even when you think a supplier is qualified you may do a few orders with them and find out they are not e.g. when your orders get bigger and they cannot handle them. The best way to find qualified suppliers is to do orders with vendors, visit them, build your relationships based on mutual benefit.

The company promises to confirm which regulations and or testing you need to do. Product testing and regulation can be a real minefield, not to mention that requirements vary from customer to customer. If you want to find out which tests you need to do you should discuss with your customer and the CPSIA or testing lab directly. Don’t rely on someone else to give you this info.

The company promises to figure the total cost of your order. Costs on a China order always seem to go up for some reason, usually because the vendor figures out they are not making as much money as they want to. Often what you think an order will cost is not what it ends up costing.

Anyway as I wrote to the person who sent me the link: “China is just a darned difficult place to do business. If someone tells you you can make it easy or eliminate risk by paying $ 149.00 for a “report” they are just misleading you.

POSTCRIPT: After I wrote this my Vietnam sourcing contact wrote me and told me that the company had lowered the price on the report to $ 99.00. I guess at $ 149.00 they had few takers.

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200th Blog Post – China Sourcing for Small Businesses aka Mulberry Fields

I was wondering what to write about for my 200th blog post, a milestone of sorts. Since I was reading an article on Pu Dong today and thinking back to my own experience there, which is unique, I think I will make the 200th post about Pudong.

In the fall of 1990 I moved to Shanghai where I had been invited to be an instructor for the 1990-1991 academic year at the Shanghai Maritime Institute in Pudong. This was the institute where all of the COSCO (China Ocean Shipping Company) and Maritime industry executives were trained. There were 3 overseas lecturers at the Institute – myself and two ladies from New Zealand, Mick and Jenny. We were all pioneers for we were the only three foreigners living in Pudong at that time, what I was told by the school administration. This was after all Pudong in 1990, a year before Pudong was declared a Special Economic Zone by the Chinese Government.

Pudong was a wasteland in those days. It was countryside and there were no tall buildings other than drab grey Soviet era apartment blocks. There were no tunnels or bridges connecting Pudong to Puxi ( Shanghai proper ) and if you wanted to go into the city it took a 20 minute bus–ride and then an anxiety laden trip across the Huang Pu River on a dilapidated and overcrowded ferry. I remember how on those trips across the river I used to look at the half-submerged stern and think how fortunate I was that my parents had sent me to swimming camp when I was a kid. Those ferry trips were certainly memorable. For the duration of the 15 minute passage, I had to endure dumbstruck and not always friendly stares from peasants because this was a time in Shanghai when there were very few foreigners and anti-western sentiment was still widespread. 40 years of anti-Western Maoist propaganda does not go away overnight. I am sure that for some people I was the first foreigner they had ever seen, their absolutely agape expressions betraying that. If I was lucky enough to get a space by the railing, what I always aimed for in order to avert the curious and hostile faces, I could look into the river and always spot some interesting objects, what became my pastime on those river crossings: bicycles, appliances, shoes or other articles of clothing and the occasional pig carcass. You name it and someone had tossed it into the Huang Pu. When dead pigs were polluting the Huang Pu last year, a story which made international headlines, I could certainly relate. Shanghai in those days was not the sparkling, chi-chi international city it has become, pig strewn rivers notwithstanding.

There was little to do in Pudong back then so I spent my days studying Chinese, playing basketball or frequenting some of the local pool halls with my students who knew a thing about pool and also about drinking ( these were employees of COSCO not regular students). The restaurants we would go to were great. Authentic Chinese food for a couple of dollars. Some of the best food I have ever had. Chinese food in New York, Tokyo, San Francisco ? Forget it.

Pudong nowadays looks like Manhattan. The last time I was there, in 2011, I was absolutely astonished at the growth. It is unrecognizable from the place where I lived over 20 years ago and it has become the symbol for Shanghai and modern China. Pudong can boast now some of the tallest buildings in the world and there are now over 50,000 foreign residents there. Driving past the Mercedes Benz dealership in Liu Jia Zui which is probably bigger than the New York Public Library, I could think back to my early days boarding the Pudong ferry in Liu Jia Zui and at that moment I could see all of China’s potential. And I think back to those COSCO training classes that Mick, Jenny and I taught. Just the three of us in that vast stretch of land across the river from Shanghai.

Wow, I can’t believe I was part of all that.

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