A little wisdom goes a long way when you source in China

I had an inquiry from a small company in Australia this week. This inquiry was like so many I get from small companies or start-ups that have an idea for a product but no idea how to source it. I thought the individual who wrote to me showed great wisdom because she said she had been considering a trip to China to meet a supplier she had found on alibaba until she realized that that might not be a good idea. She wrote:

we had been planning to take a trip to China to get some samples and designs sorted with one supplier we had found online, but I decided we really didn’t know enough about what we were doing to take the step of flying there when ….. we didn’t have any back up options had we not been satisfied with them ( the supplier).

To this I replied:

You have made a wise decision in cancelling the trip to China, if all that would have been involved was meeting one supplier you met on alibaba. Those China trips are expensive, not to mention tiring, and you should always get as much out of them as you can.

My best advice to her was to line up some vendors over the next couple of months and then consider attending the Canton or Hong Kong sourcing fairs in the fall. At that time she could meet with all the vendors she had been in discussions with as well as many new vendors at the fairs. This is the way to start sourcing in China. Yet too many people I meet are just so anxious to get started, believing that they have re-invented the automobile, that they rush into an order with a supplier they know nothing about and what results is almost always a fiasco.

She went on to say how she had identified the need to work with someone who knows China as they get started over there.

We are now at the stage where we are ready to source a manufacturer and are ready to fly over there to get the ball rolling, but feel we need the services of someone with plenty of experience in this area to assist us in making sure we are doing so in the smartest, best-informed manner possible …… We obviously do not speak any of the language and although have both been on short holidays to China, are definitely not well acquainted with the country, so we would love to have someone who can source suppliers for us and who can help us to arrange our initial trip there and advise us on the process.

Smart thinking. Trying to navigate China on your own is just not wise. You can lose a lot of money there if you are not careful in your choice of suppliers. And even when you are careful you can still lose money if you let your guard down. It is just not an easy place to do business. The more knowledge you have on your team going in, the better you will do. If you have to pay for that knowledge I would say that is a good investment.

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China’s new trademark law comes into effect

China’s new trademark law came into effect this month. Some of the highlights are as follows:

1.) Trademark registrations are now supposed to take no more than 9 months from the date of filing. Previously they could take up to two years.

2.) You can register a trademark in many categories with just one application now. Previously you had to file a separate application for each category you were registering your trademark in. The new law will now save you time and money.

3.) Use of well-known trademarks is banned. This probably comes after complaints by big companies like Starbucks, Apple etc who over the years have seen their trademarks watontoly used by Chinese companies. It will be interesting to see how this plays out because these knock offs of global brands are part of the landscape in every big Chinese city it seems. And in plenty of small cities as well.

4.) The new law affords protection for unregistered trademarks in a business relationship. If I am sourcing in China for a product and I want to apply my unregistered trademark to the product, no one whom I deal with in China can take that trademark and register it before I do.

Of course enforcing these new laws will prove much more difficult than merely putting them down on paper. And the process for going after violators will be time consuming and costly. I am sure. So don’t be fooled into thinking that your IP in China now is hunky dory safe. I think you still have to be careful. However, I do see the new law as a huge step in the right direction and I think the Chinese Govt should be applauded for this. Remember China is a country that did not have its first trademark law until 1982. In contrast the US started to implement trademark legislation in the 1870s.

Change is good, I like to say.

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Interview with the East Asia Company

A procurement software company asked me to sit down for an interview a couple of weeks ago. This is pretty much doing business in China in a nutshell. http://blog.procurify.com/2014/05/08/tips-on-doing-business-in-china-from-a-veteran/

Valuable China sourcing lessons from Kenny G ? Yes, from Kenny G.

There was an article on Kenny G in the NY Times this weekend. Actually it was an article on the popularity of Kenny G in China where one of his songs, Going Home, has become part of the cultural landscape, played everywhere, in supermarkets, schools, shopping malls, etc. You cannot travel to China these days and not hear Going Home. It is everywhere. And that has been the case since it was released 25 years ago.

It was an interesting article because I remember well my introduction to Kenny G. I was a lecturer at the Shanghai Maritime Institute at the time and one of my students, Mr. Yu Shi Jie, came to my apartment one day. After a little chit-chat Mr. Yu surreptitiously pulled a cassette out of his black leather jacket ( this was after all China in 1990 when people were still fearful of any display of things Western ) and asked me if I wanted to hear “sex phone.” Thinking he had meant to say phone sex, which was popular in the US back then, I looked at him incredulously and asked “sex phone in China ?” He said yes and brazenly proceeded to put the cassette in a tape player sitting on my desk. I kind of cringed not knowing what to expect but as soon as I heard Kenny G’s alto sax coming out of the speaker, I just laughed. Mr Yu of course had meant to say Saxophone.

So that was my introduction to Kenny G in China. That was 1990 and in those days Going Home was played everywhere. After a year or two of incessant Going Home all of us in the ex-pat community in Shanghai were sick of Kenny G. So I was surprised to see that hit song, Going Home is still going strong in China some 25 years later.

But the article in the Times was interesting for another reason as well. Amazingly Kenny G receives no royalties for any of his music when it is played in China. But he does not mind. He is quoted as saying.

“Do I wish I could get paid for everything? Of course,” he said in a telephone interview. “But I surrender to the fact that that’s the way things go there.” Touring China in the 1990s, he heard “Going Home” playing in Tiananmen Square, in Shanghai, on a golf course and “in a restroom in the middle of nowhere,” he said. “It made me feel great to know there was no language barrier to connecting with music.”
There is a lot of wisdom in that statement “…I surrender to the fact that that’s the way things go there.”

One of the reasons so many foreign businesses have a difficult time in China is that they refuse to “surrender” to China’s way of doing things. They try to impose their own value system on the Chinese and they are offended when the Chinese reject it. They are very un-kenny G-like about the whole thing. IP is a good example. Many foreign businesses expect the Chinese to respect IP failing to understand that just 20 years ago the concept of IP did not even exist in China and that many people there, especially in under developed areas, still don’t understand it. In Kenny G;s words: “…that’s just the way things go there..”

Funny but I would say that Kenny G understands China more than some people who have been doing business there for years.

http://www.theeastasiaco.com

China’s tensions with Japan. It affects you too.

Japan and China have been sparring over the Diaoyu Islands since late 2012. The story has dominated headlines in China in that time and also in Japan periodically. Just the other day I looked to see what the most read stories in the Peoples Daily were and six of the ten most read stories had to do with the dispute with Japan. And this was during a week when things had settled down somewhat and the story had all but disappeared from the headlines in Japan. I thought this was very interesting and betrayed not only how the two nations look at themselves in relation to each other but also how they look at the rest of the world.

China’s dispute with Japan has resulted in major losses for Japanese businesses in China. Not unexpectedly, many Japanese businesses – small and large – are reevaluating their China strategy in the wake of the dispute with China. And Chinese vendors are not favorably disposed to Japanese businesses, as I found out on one occasion lat year. I had emailed a vendor in Yiwu for a price quotation and the vendor, seeing my address in Tokyo and thinking I was Japanese, sent me an email telling me that his company had suspended all relations with Japanese customers. He subsequently apologized and amended his statement when I told him I was American. I was surprised though that a company would go to such extreme measures to make a political point. Can you imagine if the US and China had an international incident and a small US company facing a cancellation date on an order could not get its product out of China?

What this means for you. Although one would not think that a dispute between China and Japan would have any impact on a western business in China, it does. The reason is that China is very sensitive about foreign aggression on its own soil, past and present. This includes not only the current dispute with Japan, but Japan’s aggression during the Second World War, the Opium and Cold Wars with the west and the US bombing of the Chinese Embassy in Belgrade in 1999 , which is never far from the surface in China-US disputes. In other words, when China feels wronged by Japan then it also feels wronged by any other country that has acted aggressively towards China over the years. I would add that the US and other western nations have been strong allies of Japan in the post-war period and the Chinese are aware of this.

For this reason, when China is involved in a major international row – even if it involves a country other than your own – vendors may not react kindly if they have any sense that you are lording over them, when a mistake has been made or something is not going as planned. You should always exercise a little sensitivity at these times and conduct business in the most professional manner possible. Or as I like to say, work with your vendors and not against them.

I would add that you should never discuss politics with your China vendor. If you are travelling to China be careful about being drawn into discussions about politics. In fact, just as you check the weather before you travel overseas, it is also a good idea to check the headlines in the major Chinese English newspapers just to see what things are like before your trip. These days, for example, in addition to the headlines about the dispute with Japan there are quite a few articles and editorials about China-US tensions in the Chinese papers.

And a wise piece of advice: try to avoid mentioning the Japanese when you travel to China. If your vendor brings up the subject, then politely remain silent or try to change the subject. These discussions can be fraught with misunderstanding and can lead to awkward situations which just do not help your relationship-building in China. In sum, when you go to China to do business, focus on business. And leave the politics at home.

http://www.theeastasiaco.com

Some valuable lessons from a China sourcing project

I just finished a project helping a start up apparel company find a supplier in China. This company is showing at a trade show this month and they just received the show samples which they were very pleased with. The vendor I set them up with, a vendor I met in China a few years ago, has been great to work with. They have been very responsive and worked effortlessly to get samples to my client in time for her show. It was close though. My client did not communicate her show sample needs to me immediately the result being that we had to grapple with month delay because of Chinese New Year and ran the risk of not getting the samples in time.

Reflecting on the order yesterday I told myself, yes there are valuable lessons to be learned on almost every order it seems. Accordingly here are the lessons on this order:

1.) As soon as you know your show schedule and your sample needs communicate those to vendors or agents or anyone you are working with on the order. In general you should give vendors three months to get samples ready for you. That may seem like a long time but remember vendors are busy people and have other customers as well.

2.) Check the calendar of the country where you are sourcing and look for major holidays which might mean hiccups in production or delivery. In China, for example, you do not want to schedule anything, samples or bulk production, around CNY or National Day. These are not garden variety national holidays but major holidays that usually result in 2-4 week work stoppages. In the West, or Japan, a holiday means a few days off. Not so in other parts of the world.

3.) Don’t stop when you have found a good vendor. The client I refer to here is a small business. The vendor I have set her up with is a big factory that can count Disney and the Gap among their customers. I would not normally set up a small business with a big factory but this vendor is very responsive, professional and can give my client a good cost based on economies of scale. I have also met them and have established some rapport with them over the years. This is not the first project I have run by them. Having said all that I have told my customer that in order to keep the vendor’s interest she will have to increase her orders over time and establish a good working relationship with the vendor. Hopefully the samples she just received will go a long way in helping her do that. But at the same time she should be looking for other vendors in the event she is not able to increase her orders to the satisfaction of her vendor.

And this is the model you follow when you source in China. Always.

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Overseas companies are not the only ones who care about quality product in China. Chinese consumers care too.

As the average Chinese citizen’s buying power grows so does his/her expectations regarding product quality. If you pick up any Chinese newspaper today chances are that you will see an article about a product with a quality issue. In March last year it was VW cars sold in China. VW recalled 384,000 cars in China that a Chinese regulator has identified as having a gear box issue. Before it was VW, it was Apple. And before it was Apple it was a car manufacturer in Anhui Province. Product recalls in China – something one just did not see 10 years ago – are becoming as commonplace as they are in the US. You can look at this and think that it just underlies the problems with quality in China. Or you can look at it and see it as a growing awareness that quality is important to Chinese consumers. I tend to look at these stories the second way.

Another example of how quality is now counting in China is the CFDA ( China Food and Drug Administration). This is a new regulatory body that was established in response to numerous food-related scandals of recent years, most recently the scandal involving KFC which was found to be using chickens that had been fed an illegal amount of antibiotics. The CFDA opened its office in Beijing in 2013. Of course in the US the FDA has been around for ages, but it is new in China and should be seen as a symbol of Beijing’s new commitment to protecting consumers.

Big Chinese companies with global aspirations are also aware that in order to go global they have got to overcome the stigma of “Made in China.” The Govt supports this idea and to this end they are enforcing stricter regulations on consumer goods industries e.g. toy industry.

Finally, the huge Chinese online market is also influencing how consumers and vendors alike regard quality. Chinese online merchants on popular EBAY and Amazon-like sites like Taobao are aware that shipping defective product to customers will result in lost sales because of unfavorable ratings and reviews. This forces online merchants to deliver good product to their customers. This then forces the vendors or distributors to deliver good products to the merchants.

In short, China has two generations of inattention to product quality to overcome so change will be slow and when you source in China you cannot relax your standards. However over the long run I expect that Chinese quality will be very good.

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