Sourcing from China ? All the better if you like Chinese food

I have always said that one of the best things about doing business in China is that you have the opportunity to eat some great food. And make no mistake about it if you want real Chinese food you have to go to China. You just cannot find authentic Chinese food in NYC, San Francisco or Tokyo, three places I have lived at length and tried to find good Chinese restaurants. To no avail.

For me, three things stand out about Chinese food: the variety, the regional cuisines and the cost.

Variety: Case in point. A few years ago I was in Guangzhou and picked up a recipe book for soups in a local book store. This was just another recipe book in the food section of the book store but there were 2000 different recipes in this book ! And that is just soups and soups from just one province, Guangdong Province. And this mirrors my own experience living and travelling to China over the past 26 years. I can still go to China and, depending on where I am, I will have dishes I never tried before, much less heard of. And they usually turn out to be the best dishes I have ever had in my life.

Regional Cuisines. It is true that all countries have their own regional cuisines. In Japan, for example, there are many different types of Miso soup depending on which prefecture you are in. In Italy the same holds true; in the South they use more tomatoes and olive oil in cooking Still most dishes are the same regardless of where you are and in this respect food works somewhat like language. In other words, from region to region the idiom is the same with only slight variations. But in China it is different. In China when you walk into a restaurant in, say Hefei ( capital city of Anhui Province) you will find a menu entirely differnt from one in a restaurant in Shanghai.

Cost: When I lived in Shanghai some 15 years ago I used to eat regularly in a restaurant down the street from my apt. The tab for 3 or 4 dishes, rice and a couple bottles of beer was always under $ 10.00. Of course that was then. But food in China is still very cheap. In most cities, even in places like Shanghai and Beijing, you can walk into a pretty decent restaurant and eat for under $ $25.00 You can get dinner and drinks for a group of six people for proabaly not more than $ 100.00. If you went to one of the good Chinese restaurants here in San Francisco with a group of six it would probably cost you upwards of $ 300.00 -$400.00, San Francisco being what it is nowadays, one of the most expensive cities in the country.

A final thought: How much do you budget for food for a week in China ? The answer : Zero. If you are on an official vendor visit vendors will usually foot the bills for all of your meals. You will only have to pay for meals when your vendor is not present. Who could ask for more than that ?

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Zen and the art of starting an import business

I had an interesting call yesterday from someone who has made a business sourcing industrial products, mainly nuts and bolts for use in the automotive industry, out of China for the past 30 years. The company seems to be successful judging by their website and the fact that they have a sourcing office in China ( that is no small investment). But the owner of the company told me he was growing weary of the rigid quality standards for his industry, where the standard is quickly approaching 0 defective pcs/ppm (Parts Per Million)  It used to be that an acceptable rate for defects was 1% per PPM. And then it went up to  0.1 %. Now an acceptable defect rate in the automotive industry is 00.25 %/ppm . In other words if you have 26 defective bolts in a 1 million pc production lot, you risk a chargeback from your buyer. But according to “Robert” the guy who called me yesterday the industry is moving to 0/PPM. That does sound stressful. So he was asking me about manufacturing and/or sourcing commercial products out of China where, obviously, such rigid QC principles as 0/ppm do not apply. As an example of something he was thinking of doing, he told me about some hammocks he had seen at Costco and the thought occurred to him that maybe he could start bringing hammocks, or some equivalent product out of China and selling to the big boxes. I told him two things as follows:

1.) He will confront the same stresses sourcing commercial product in China as he faces sourcing industrial product. Big Box retailers have their own standards and although the concept of PPM does not apply, the quality standards can be pretty rigid.  In an AQL inspection, and let’s take as an example a production lot of 10,000 picture frames, you risk a chargeback if you have just 25 damaged pcs. And remember these frames are made by hand where there is a much greater likelihood of error than if they were made by machine. So industrial manufacturing vs. commercial manufacturing is, as I see it, six dozen of one, half dozen of the other. I have worked for many people who have lost many nights of sleep over a major order for a department store or big retailer.

2.) Getting into another business is fine. But you really have to identify what you are interested in and where your passion lies. You cannot just walk into a store and see a product and think to yourself “ I should start selling those.”  In fact I have never met anyone who got into a business this way. All of the companies I have worked in or for were established because someone used a product, saw something that was missing and found the passion in themselves to invent the missing piece, so to speak. I would add that most consumer products are very technical, belying their simplicity, so you really need to know something about what you are investing in. I cannot for example just start a business tomorrow selling lamps I source out of China because, although I have a lot of  experience in home decor, I really do not know much about lamps, beyond some basic things.

In the end I told Robert he should be more “Zen” about this. He asked me if I knew a mountain he should go sit on. A good idea, I said, But when he does come up with an idea, we both agreed China will be the place to do it for many years to come.

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The Chinese care more about IP than you think.

People come to me all the time who are worried about their IP in China. Are their designs going to be safe in China ? Is their China vendor going to sell their product to other companies ? etc etc. But I also have small US or Canadian companies who come to me asking me to help them source a US or Canadian competitor’s product in China. In other words their objective is to take someone else’s IP and have it made in China. And in the end the Chinese get the bad rap.

I really am uncomfortable when people come to me with these requests. I respect IP and I will not help someone source something unless it is their own or is such a widely sold i.e. generic product that there really is no IP e.g. blue jeans. Fortunately most of the people who approach me do so with their own designs and their own products in hand. And these are the people I love to help. But the inspiration for this post was when a start-up company asked me the other day about sourcing a much larger competitor’s product in China ( typical young 20-something start-up company mentality IMHO). They suggested to me that they could just go to the competitor’s factory and buy some of the product for themselves ( with my help of course). I told them that not only would I not help them but it was fanciful thinking. No factory in China is going to jeopardize a longstanding profitable relationship with an existing customer by supplying those same goods to a fledgling start-up. In the old days, it would have happened and did as vendors in those days cared only about maximizing profits. I have heard stories and have seen it myself. But this does not happen anymore. If it does it is rare.

And I thought back to a project I had a few years ago. A US children’s product company had asked me to source what looked to be a pretty generic item. I reached out to some vendors in China and one vendor told me that the product I was inquiring about was too close in design to one of their own customer’s products and so they could not help me. I was impressed by that response and ever since then I have advised clients of mine that when they give projects to vendors in China they should be sure about their IP, aware that, in spite of what they hear to the contrary, Chinese vendors do care about and respect IP. And I have to say that after the inquiry last week it seems to me that vendors in China sometimes respect IP more than their Western customers.

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The grass in Vietnam is not greener

It is not uncommon nowadays tohear of companies that are leaving China and moving their production to Vietnam. Some very big companies have left China moving at least part, if not all, of their production to Vietnam. One of these companies is Coach who will move about 50% of their handbag production to Vietnam and other countries in SE Asia over the next several years. The oft-cited reason is, as I stated above, that costs in China are rising and these rising costs are cutting into profit margins.

Let’s say your China project is turning out to be more expensive than you thought and someone has told you that you can do your product for half the cost in Vietnam. For small companies does it even make sense to consider a country like Vietnam as a manufacturing base ? I asked this question to several individuals or companies I have known over the years and who have experience with both China and Vietnam. Here are some of the responses I got.

From a maker of popular kitchenware who has production in China and Vietnam.

“It really depends on what you’re manufacturing however I think there are more similarities than differences. Generally speaking China is more developed and tends to be better equipped (infrastructure and economy). If your clients have concerns about labor or corruption or environment, Vietnam is not the answer, they have the same issues. Either way, relationships need to be developed and training provided. The grass is definitely not greener on the other side.”

From a Beijing based China consultant:

“Some clients of mine went to Vietnam, some to India. Most of them came back to China. They said the problem was not productivity, They said in the end it wasn’t as cheap as they thought it would be”

From another consultant/friend who deals with both Vietnam and China:

“For sourcing, Vietnam is cheaper, particularly for low-end labor-intensive production (e.g. garments, shoes, some furniture, etc.), but the problem is capacity. They don’t have the capacity to handle all the overseas manufacturers who are looking for cheap sourcing, so inevitably a lot of companies end up going back to Chinese manufacturers (and for all the reasons you’ve listed). In some cases (e.g. for garments) I know people have tried to source in Vietnam to avoid the quota system that applied in China. But Vietnam has its own challenges. ”

In fact from everyone I talked to the consensus was that Vietnam really cannot compete with China because of size. It might be OK to do some small orders there that are design driven, not deadline driven. Still any savings by doing production in Vietnam, or other countries in SE Asia, will more than likely be offset by costs that accrue from other aspects of production there. The point is this, don’t just jump at the idea of doing something in Vietnam. Research it carefully, know your needs, and then decide if that is really the best option for you.

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How EBAY can help you in your China sourcing

I am working on a project now for a children’s apparel accessory. This product will use different fabrics that need to be stitched or glued together. I am sure some vendors will feel very challenged when I run the project by them because the product also has a plastic component. For this reason I have asked my client to go do some shopping to look for a product similar to hers which shows the kind of stitch and effect and the grade of plastic she requires. I have given her some ideas of what kind of product to look for and suggested she go down to her local Target or Wal-mart to see what she can find, buy a few samples and send them to me. I can then send them on to the vendors in China.

This shopping exercise is a very helpful thing to do when you have new products to run by your China vendors. Sometimes giving them just a written description of what you want or a written description with photos is not enough to convey your idea. It always helps if they have some physical samples they can reference, even if there are changes from that sample to your own product. As I like to say, never assume any level of understanding when you source overseas, but instead spell everything out for your vendor. And I mean everything. So a good question you need to ask yourself is this: Is there something down at Target or Wal-Mart or even on EBAY that is similar to what I have? And remember it does not have to be a product in the same product line as yours, but just one that might use the same construction. In the case of my apparel product, I told my client to go look in the pet section at her local Target because there she should be able to find an example of the durable fabric she is looking for with a plastic component.

Canton Fair 2011