There was an article in the NY Times this weekend about the direction of China’s economy. There has been a spate of these articles lately as certain economic indicators coming out of China point to a slow down. I think there is not a small amount of envy behind these trendy headlines about China’s slowdown, for Americans are not happy to see so much growth in China and so little growth here at home. Whenever economic markers point to a slowdown in China, the media here in the US jump immediately and all the headlines are about “…the slowing Chinese economy.” This seems to be the pattern. In the meantime the Chinese economy marches forward.
The point of the article is that no one really knows what is going to happen to China’s economy over the long run. There are indications that the phenomenal growth we have witnessed in China over the past 30 years will soon come to an end. But others say we have to ignore those signs, based on historical data and statistical models, and look at what is happening inside of China right now. Here is the article. NY Times article
For my own part I don’t see things slowing down in China for a long time, and for the same reason someone quoted in the article gives: China’s drive to urbanization. For all it’s progress over the past 30 years, which saw 30% of the Chinese population move from rural to urban areas, China remains a country mired in rural backwardness. About half of the country sill lives in rural areas where the average wage is less than $5.00 per day. In fact only two years ago did the urban population of China surpass the rural population. In contrast only about 20% of the US population lives in rural areas and in Japan the figure is less than 10%. I have been in some of these rural areas 3rd and 4th tier cities in inland provinces and they are huge, but underdeveloped. Some of them remind me of Shanghai 25 years ago and when I drive through them I think to myself “ wait until these places start developing as well….” And that is what is going to happen over the next 25 years.
I once worked for a company the owner of which just did not like to deal with trading companies. If you mentioned the word “trading co.” he would just groan. Still he used them occasionally maybe because he really liked a certain product and he had no way to source the product from the factory directly. But if you were a trading co that was one big strike against you and you really had to have an exceptional sales pitch or product to get an order from him.
And that has always been my way of thinking as well. As a rule I generally don’t like to use trading companies because often they have no control over the factory. If you have a design driven product with a lot of requirements it is imperative that you work directly with the factory because that is the only way you can control quality in production. You simply cannot rely on intermediaries – sometimes individuals who have very little on site factory or product experience – to manage your relationship and product standards with a third party vendor. Trading companies just seem very ineffective to me and they always have.
But as with my former boss so with me. Sometimes your only option is a trading co. Last spring I went to the Canton Fair on behalf of a client. I came across a booth that had the nicest and widest selection of product in my client’s category (home décor). They seemed very responsive and professional. The owner was very nice. I have been in a lot of booths at the Canton Fair over the years and have met a lot of vendors and I liked the owner of this company. But they were a trading co. I had two choices, ignore them because they were a trading company or give them the benefit of the doubt get their info and pass this along to my customer with the caveat that for her product this might work only if she were prepared to monitor the production in China (this is the only way sometimes to ensure the quality of your orders factory or trading co). I decided to pass on the info to her simply because I knew the vendor had product my client would be interested in. I would add that my client has been to China several times and she herself has worked with vendors and trading companies there over the years. As long as I gave her full disclosure and my advice she would know what was involved and she would then be in a good position to make her own decision.
To be continued.
As much as I like Jack Ma I really have to question sometimes how effective it is to source product on alibaba. A case in point: a company in Vienna asked me recently to help them locate a supplier in China. The company has bought some health products from someone they met on alibaba but the orders have not gone too well and the Viennese company now realizes that it has been dealing with an agent and not the manufacturer itself. So they have asked me to help.
And this is one of the risks in using alibaba, namely that you really have no idea who you are dealing with. Many agents in China set up on alibaba and use the names of the companies whose products they are selling but in fact they have no association with the company. So you think you are buying direct from the factory in China when in fact you are not. For this particular project, I looked up the Chinese company in question and I found 5-6 alibaba sites for them all with different contact people listed. It looks like agents or individuals in China are selling the Chinese company’s products on alibaba simply using the company name. It is very confusing to say the least and I can understand how the company in Vienna could have been misled. But this is SOP in China so you have to be careful.
One clue that the Viennese company has not been dealing with the original manufacturer was that they had been making payments to an individual and not a company. This does not necessarily mean that one is not dealing with the vendor itself for small companies may sometimes have payment arrangements like this. I had another project recently where I was asked to pay a sample fee to an individual’s Western Union account in China which I thought was strange. But the vendor explained to me that if paying a sample fee to the bank, the service charge really offsets the sample charge. It made plenty of sense and it was not worth worrying about for a sample fee. But if you are asked to make a sizeable payment for an order to an individual you should at least try to obtain proof that the person is affiliated with the company you think are buying from. You can do this by running a credit check on the company in question and then using the contact info on the credit check to contact the company to verify who you have been dealing with. A credit check on a Chinese company will cost you a few hundred dollars but you have to see it as doing your due diligence. And in China sourcing you have to do your due diligence. Make no mistake about it.
This is a sensitive time to be doing business with China because of the political situation in Hong Kong. At times like this you have to be very careful in your discussions with vendors to avoid talking about politics because most vendors in China are pro-Chinese government and probably not supportive of the protests in Hong Kong. I would add that whereas in the US we discuss politics openly, in China people are not in the habit of discussing politics, and the subject is slightly uncomfortable for them when you raise it ( the one exception is Japan bashing which is so commonplace in China as to seem part of the national character).
Yet over the years I have seen westerners who think nothing of trying to discuss human rights or politics with their Chinese vendors simply because they come from open societies where people discuss subjects of this nature, forgetting or simply just ignorant of the fact that they are in China, where discussions about democracy, human rights and politics in general are not things most people are used to or comfortable with. Their intent in raising these subjects with vendors sometimes is the result of sincere interest, yet more often it comes from a western tendency to lecture China. But one thing is certain and that is that vendors never react favorably although they may be polite enough.
So as interesting as the Hong Kong story may seem to you, it is best if you just ignore it. Or better yet go out of your way not to discuss it.