Innovation is nothing new in China

Shaun Rein, the author of The End of Cheap China, a book I reviewed on my blog a couple of years ago, sent me an email today. In the email he was publicizing his new book about innovation in China entitled The End of Copycat China: the rise of Creativity, Innovation, and Individualism in Asia. The Book will be available in the fall.

I enjoyed The End of Cheap China ( review here The End of Cheap China ) and I am sure Rein’s new book will be just as good. Because you know what I agree with Shaun Rein. I think there has always been tremendous innovation in China. What is the old phrase Necessity is the mother of invention. Well no where is that more apparent than in China where decades of poverty have forced people to be innovative in every nook and cranny, something we do not see in developed countries.

One of my favorite examples of Chinese innovation occurred about four years ago on a trip to Guangzhou. I had broken a pair of glasses in Tokyo and could not find anyone in Tokyo who could repair them. I must have gone to five or six optical stores but no one could do it. All that wonderful Japanese innovation could not mend my $ 200.00 pair of glasses. Fortunately at the time I was headed to China for the Canton Fair and I knew if I took my glasses I would find someone there who could fix them. SEven years of living in Shanghai taught me this: if something is broken the Chinese can fix it. And so I packed a pair of broken glasses with me. One day after the fair I took the glasses to an optical store in Guangzhou and they told me 没问题 ( trans “no problem”) and asked me to come back in an hour. When I returned my glasses were fixed. The frame had been broken and while the Japanese looked at the frame and said it could not be fixed and just gave up at that point, the Chinese solved the problem by looking for a solution in the part that was not broken, the lens. What they did was to drill holes in the lens and then attached a wire frame to the lens. In many ways it was a typical Chinese solution, crazy but functional. And I have seen it many times over the years.

Of course these were just glasses and I can not use this one example to make an argument that China is on a par with the west or Japan in terms of innovation. I do not think it is. But the innovative spirit is there and China is catching up to the west. In fact, a recent study by the University of Michigan and Peking University makes the point that China has already surpassed the United States in innovation in Science and Engineering. The study was published in the Proceedings of the National Academy of Sciences in the United States of America. Reading this study critically one can question its objectivity since both of the authors are Chinese . But there is some truth to their findings otherwise it would not have appeared in such a prestigious journal. At least that is how I would look at it.

Why then China’s bad rap as a country and culture that is imitative and not innovative ? I think much of this misplaced attitude is owing to inherently negative views of China that have prevailed since the Cold War ( and perhaps before). Just as 40 years of anti Western propaganda in China have led most Chinese people to have an unfavorable view of the West, especially the US, so have four decades of anti-China propaganda in the US taken its toll in terms of how Westerners look at China.

But this is changing because China is innovating like never before.

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If you are looking for a factory in the USA you may well be wasting your time

Recently I came across a blog post of a toy manufacturer in the US. The blog post was the company’s response to a customer who had asked the company why they made dolls in China. It is not much of a question for the answer, that it is just much cheaper to make toys in China, is obvious but the blogger went on to list a couple of less obvious, but very good, reasons why China is a good place to manufacture dolls. These are as follows:

1.) According to the blogger there is just one doll factory remaining in the US, a factory in Indiana. When I go on alibaba and see how many doll suppliers come up in China, the number is over 7,000. In other words, if you are trying to get a doll made in the US you will have a difficult time of it. In fact I am a bit incredulous when the blogger states that there is just one doll factory in the US. Surely there must be more than one. Common sense tells me there are a handful. Still the point is well taken. It just saves time and money making a doll in China. And a lot of it. And I imagine it is the same with a lot of consumer products. No one even makes them anymore here.

2.) The US does not have the doll making technology any more since very few dolls are made here nowadays. So even if you had the budget to make a doll at the one factory in Indiana, there still would be technical limitations. This is a good point because one result of the cosmic shift of manufacturing from the US to China over the past 30 years is that all the latest manufacturing technology is in China and not the US. In fact, I just heard from a client of mine the other day who was having a hard time finding a factory in the US who could do a stitch she needed on one of her products. Apparently no companies she approached had the machines capabale of doing this stitch. They are all in China.

Made in the USA. Who can afford to do it anymore? And even if you can, is it possible?

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In the end it always comes back to China

Someone ran a project by me last week. The person wants to source camping chairs. But the catch is they don’t want them from China because of China’s problems with child labour. Hmmm, I thought to myself that could be tough seeing as product in some consumer goods categories e.g. toys, outdoor equipment are almost exclusively made in China. In fact I recently saw one stat from a prominent toy industry blogger who said that about 85% of the world’s toys are made in China. That is a bit higher than I thought but it still does not surprise me. That’s China.

Anyway, as I usually do I went on alibaba to do some research. Let me make it clear here that I do not think alibaba is a good place to source vendors. But it is a great place to do research and that is how I like to use it. So and did a search of camping chairs and . worldwide 1,248 suppliers came up. Then I did an advanced search restricting my search to China and 1130 suppliers came up. That means that just 118 suppliers worldwide, as listed on alibaba, are not Chinese. I then restricted the search to India and just 16 suppliers came up. But half of those list camping chairs made in China. Moral of the story: it could be very hard to find a non-Chinese supplier of cast iron or aluminum folding camping chairs,

Of course there are countries other than China where camping chairs are made, the aforementioned India, Turkey et al. Of those 16 India vendors, for example, half of them do produce locally I saw. But then you have to ask yourself how those vendors are set up to compete with China on price and quality ? I suspect the chairs are either very pricey, compared to China, or the quality is very bad. In other words, you really don’t have any choice but China for some of these product categories if you have margins to meet and/or big QTYs.

And it will still be this way for many years to come.

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In China you need patience, patience and more patience

I have been exchanging emails this week with a San Francisco start up that wants to begin sourcing in China. Like all start ups here in the Bay Area these guys move fast. And they want me to move fast too. I gave them my timeline for a sourcing project which is generally 6-8 weeks and they said that was too long and that they were under pressure from their investor to get the ball rolling sooner. I have gone back to them this morning and told them I might be able to expedite the process by a week or two but after that I would really be pushing it. I explained to them that just getting samples to and from China can easily take 2-3 weeks. Their QTYs are also small, as this is their first order, and I told them that they would have a hard time pushing vendors unless they were really making it worthwhile for the vendor. NB. Dangling promises of bigger orders is not really an effective strategy when you are courting China vendors. The reason is that those small orders seldom turn into much larger orders and the vendors know it.

But this got me to thinking, what I have said so many times before, that it is important not to rush your orders when you do business in China. And this rule applies whether you are buying out of China or selling into China. Some big companies e.g. Best Buy, EBAY, Home Depot, Tesco et al have failed miserably in China because they rushed into China. Beginning in 2006 Home Depot opened 12 stores in China and six years later they were all closed. They might have done better in China had they opened just one or two stores and waited until those were doing well and the Home Depot brand was beginning to resonate with Chinese consumers. But when Home Depot left China no one noticed. Most people in China had never even heard of it.

As I like to say, when you do business in China you have to be patient, patient and more patient. And then when you think have exhausted your patience, you just have to be patient a little more.

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Don’t believe success in China is cheap and easy

A client told me recently about a mompreneur who has achieved a small measure of success with a product sold widely in the UK and Australia. This mompreneur reportedly got started by placing a $ 1000.00 order with a China supplier she met on alibaba and my client is hoping she can start out with an equally minimal investment. As my client’s product is design driven and involves a custom mould and printed fabric I told her right there that her costs would be considerable. Mould costs and fabric minimums alone will run several thousands of dollars. But then I explained to my client that as dramatic as it sounds the mompreneur she had read about probably did not get started in China with such a small investment. Here were my reasons:

1.) A $ 1000.00 order out of China would mean that the vendor made a very small profit, just a few hundred dollars, or they just broke even. Most vendors in China I know do not do small orders with small foreign home-based businesses just to break even. Some vendors will take small orders but usually only from established companies where the hope is that the second order will be much larger than the first.

2.) I looked on her website and see that the mompreneur’s product retails for about $ 20.00 meaning that she probably gets it out of China for $7.00- $10.00. So a $ 1000.00 order would translate to between 100-150 units. No vendor I know of would accept such a small order.

3.) The mompreneur’s product includes a full color retail display box. No printer I have ever done business with is going to make up just 150 boxes. Printers have minimums and no printer is going to print up a mere 150 small boxes which probably cost no more than $0.10 each. Do the math: 150 boxes at $ 0.10 each is $ 15.00. Is any printer going to accept that order?

4.) Most Chinese companies with English speaking employees have a fair amount of overseas business (that is the only reason they would have someone who speaks English on their staff). In fact a lot of Chinese companies still do not retain any English speakers. It is unlikely that a company that already does a lot of business with overseas buyers would be interested in such a small order.

This is all pure speculation on my part. Of course I don’t know for certain that the mompreneur did not get started with such a minimal investment (this fact was apparently included in a newspaper article about her company). Who knows, it is possible she found a very small 3rd tier factory on alibaba who was in dire straits and desperate for an order. Plenty of those in China these days. But my common sense and 26 years of China wisdom tells me that the $1000.00 story is more hyperbole or creative marketing than actual fact.

In short, don’t always believe the small business rags to riches stories that you hear. More often than not they are not true. It takes time to build a business and, especially if you are in consumer goods, it usually takes a fair amount of cash as well.

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