A letter from a small business owner about his frustrations sourcing in China

I finally found one thing more challenging than sourcing in China and that is taking care of a small child all summer. My daughter was out of school in early June and when it was apparent that the summer camps I had signed her up were not going to work out, it was my turn.  So I reluctantly turned down some projects and turned off my blog for two months. Now that school has started it is time to pick up where I left off.

Needless to say there is a lot of panic about China these days. The sharp downturn in the Shanghai Composite and the impact on global economies makes for good headlines but I am not too worried. As a long time China watcher said recently, the crisis is one in the stock market, a “trading event”  and not in the economy as a whole. GDP growth is still strong in China, anywhere from 5-7% (depending on whose figures you trust, the Chinese Govt or economists at UBS). and many areas of the economy show strength, most notably wages and consumer spending, both of which are up. So what I think we will see is more instability in the Shanghai Composite over the short run but nothing that will lead to widespread panic and crisis in China. All you have to do is look at images of crowded high-end boutiques in Shanghai to know that the days of Communist-like austerity programs and widespread instability are over.

In the meantime, back to sourcing.   I had a letter from a small business owner yesterday. He is frustrated by his suppliers in China, all of whom I believe he found on alibaba.  Here is what he wrote to me.

I came across your website when searching for small business sourcing options.  I manufacture custom craft beer tap handles for breweries and restaurants across the US and Canada.  I have gone through the process of sourcing my products myself through Alibaba and needless to say I’m tired of it and looking for help.  My order size is usually 100-600+ pieces and materials used are usually cast urethane/resin, metal, or wood.  My target price per piece is typically around $0.00 including shipping costs (by air). I’d like to find a factory that I can establish a relationship with and receive reliable quality, no price changes, no haggling, and easy communication.  Any insight you can offer would be greatly appreciated.  

Regarding his desire to find vendors in China who don’t suddenly increase prices, who maintain consistent quality and who are reliable with communication, I replied to him, “welcome to the club.”  My advice to him was blunt.  If you do not have big order QTYs you will have a hard time finding vendors who want to keep your business beyond an order or two.  The reason is this: so many small overseas importers come and go in China that vendors there seldom expect to retain small scale overseas customers after an order or two. The goal therefore  is to get a first order by quoting low prices and then once the customer has committed their production to the supplier, the supplier will increase the cost hoping to cash in on a second order with higher costs.

This is not to say that the vendor who will work with the small importer in a collaborative way with an eye to forging a long term relationship does not exist. They do. But you need to find them and then work with them, which usually means travelling to China 3-4 times a year. If you are not willing to do this, the best way to manage your business in China would be to work with a Chinese agent in your own city with whom you can build a relationship. And once you have established a strong working relationship with the agent, based on your same locale and perhaps some contacts in common or possibly common interests, that agent will hopefully work with the factory in China on your behalf to keep your prices and quality stable. You pay more for your product but if in the end you can run your business, it is worth it.

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