When you do business in China, leave your Nationality at home

I was watching an interesting program on NHK, the Japanese network, the other night.  The program, broadcast weekly, is entitled “Professionals” and shows people engaged in various professions in Japan, everyone from, say, a violinist with the NHK Philharmonic to a waiter in a non-descript udon restaurant.  The installment the other night featured a well-known female civil engineer, Reiko Abe, who has faced considerable discrimination in Japan because she works in a male-dominated profession, tunnel engineering.  Her solution to the problem is to work for a Tokyo based project management firm that stations her abroad, in countries in need of expertise from Japan e.g. India and Indonesia.  Two of the projects she has worked on in recent years are the subway system in Jakarta and the bullet train in India. Denied upward mobility in Japan, she is now regarded as one of the top tunnel engineers in the world.

It was an interesting program not only because it shows the depths of discrimination that women still face in Japan but also for one revealing line Ms. Abe uttered when asked how to explain her success in a country like Indonesia, where building standards and a sometimes feudal mentality among workers are barriers to modernization.  Abe said the key to her success on overseas projects is that she always “throws away Japan before going abroad.”   I thought that was an interesting way to put it, in other words, that Ms. Abe gives her national identity all the value of an empty can when she is working abroad.   But this is what she does when she goes overseas.  And this is why she is in such demand now for high-profile international projects. In a foreign country, she obviously knows how to adapt and get things done.

And this is what you have to do when you do business in China.  Adapt. You cannot be weighed down by your own customs and flummoxed by unfamiliarity.  A case in point is former colleague of mine.  Whenever she visited China she would insist on being driven back to her hotel everytime she had to use the bathroom. She just refused to use the bathroom in the office or factory.  The exact opposite of Ms. Abe.  Needless to say, the Chinese did not enjoy working with her and her projects never went smoothly.

So the next time you are about to get on a plane to China and you see the bin where you have to dispose of all the things that are prohibited on board, make an additional imaginary bin in your mind that says Items Prohibited Beyond This Point:  Your Nationality.  

Here is a story and interview with Ms. Abe from Bloomberg. Reiko Abe feature

 

 

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Interview with a Chinese woman entrepreneur

Given the rise of women entrepreneurship in China in recent years – over 50% of all new businesses on taobao, China’s main e-commerce platform are started by women – I thought it would be interesting to interview a friend of mine who is one of these entrepreneurs.  Ms. Fu first got her start in the basket business about 15 years ago and now runs a successful trading company in Shenzhen.  After over a decade of exporting Chinese products globally, she is just starting to import products from overseas into China, one indication that China’s economic model is changing.

EAC:   How did you get started in Business?

Ms. FuI was interested in doing business from an early age.  It seemed natural to start a company on my own.

EACWhy did you decide to start with baskets?

Ms. FuI always liked baskets, maybe because I grew up in an area where there was a lot of basket production, in South China. But I thought that would be a good place to start. Now, however, the basket business has slowed down considerably and it is very hard to sell baskets to US buyers now. So I am looking to get into other businesses, including importing products from the US into China.

EAC:  Did you have a lot of problems at first because you are a woman ? 

Ms. Fu:   No. There is a  famous saying in Chinese, that women are the half of the sky. Quite honestly I did not feel any major barriers as a woman trying to start her first company.

EAC:  Do you feel any discrimination now when you try to do business given your success as a woman entrepreneur ?  I mean do you sense that some men might be envious or skeptical of your success ?

Ms. FuNo. I know there is discrimination against women in China but I have not really experienced this.

EAC:  Do you feel that business world in China is still dominated by men ?  Or are there quite a lot of female entrepreneurs such as yourself doing business in China nowadays ?

 

Ms. Fu: Not just in China, but women all over the world are becoming more and more independent. And of course, more and more women would like to set up their own companies. Although many companies are still run by men, in China and in the US. I think this is changing.

EAC:  Do you feel there are any advantages to being a female entrepreneur in China now ?

Ms. Fu: Not really. China is pretty open these days and Government policies tend to reflect a certain equality. Any advantages may be peculiar to a certain company.

 

EAC:   What are the main obstacles you face now as you try to grow your business ?

Ms. Fu: The main obstacle is balancing work and family life. And I have to think about other opportunities if one of my businesses is not going well. I am constantly thinking what to do next.

 

EAC  How is the state of China’s economy nowadays?  Is business slowing down or are things pretty much as normal ?

Ms. Fu Life in China just gets better and better.  There are just so many more opportunities now than there used to be. And much of the world looks to China now for opportunity.

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Is there any way around MOQs ? Unfortunately not.

One issue that small companies and start ups grapple with all the time when they source overseas is MOQ (Minimum Order Quantity).  I don’t think a week goes by when I don’t get an inquiry from a small company that wants to source a product in China but in very small QTYs, in many cases just a few hundred units. For example, a few weeks back a London based women’s apparel start-up emailed me.  They have 20 designs and want to order between 100-200 pcs per design.  They want good quality and a low cost.  I told them that I saw this as a very challenging project and I suggested that the only way to do this would be to reduce the number of designs and increase the order QTY per design. Only in that way could they think of meeting the fabric MOQs that vendors in China would likely be facing were they to take this order.  Like many small companies that hold steadfast to their designs, this company said they didn’t want to eliminate any designs and that was the last I heard from them.  I imagine they are back on alibaba looking for suppliers.

Although there are suppliers in China that will accept small orders, these are generally not reputable suppliers and if you do place an order with a vendor like this you might just be throwing away your money. The vendor makes a small profit and sends you an order you cannot sell.  I have seen it happen many times.

Just out of curiosity I went online to see how other sourcing consultants handle the issue of MOQ. In other words is there any way around MOQ ?   Some of the advice I saw is as follows:  limit product customization; negotiate a lower MOQ; pay a higher unit cost; streamline material usage; focus on buying from small suppliers etc etc. Let’s look at these strategies:

  • Simplifying product design. Conceivably, the only way this would get you around an MOQ would be if you were simplifying design to cut unit cost so you could order more of a product to meet an MOQ.  It sounds good in theory but I have never in fact seen a company do this.  Companies that change a design do so to lower costs, not to increase their costs.  I would add that modifications to a product design, unless major, usually result in very insignificant cost reductions.  But, as I said, I have never heard of a company doing this.
  • Negotiate a lower MOQ. I think this only works with vendors with whom you have had a longstanding relationship. They want to maintain the relationship and therefore will sometimes waive MOQ requirements.  This happens all the time. On the other hand, if you negotiate a lower MOQ with with a first time vendor, they will just seek to cut costs in your production and you may end up with goods you can’t sell.  I always advise companies not to get into protracted negotiations with first time suppliers because it just sends the relationship in the wrong direction from the get-go.  But OK if you are trying to get around an MOQ with a longstanding vendor.  It never hurts to ask.
  • Pay a higher unit cost. What you will have to do if you want to order less than the MOQ. If you have target costs this may make your project untenable. It also locks you into a higher price as your orders get bigger. Yet this is what many companies have to do to get around MOQ.
  • Streamline material usage: Not realistic unless you have a product you can do this with. Most small companies don’t.
  • Buy from small suppliers. Small suppliers are usually not reputable suppliers.  If you have any kind of strict design requirements, you will not have success with small suppliers who simply do not have the expertise to handle challenging designs/orders.

In fact, the only thing I advise small companies to do when they are inquiring with a China vendor about MOQ is NOT to ask the vendor first what their MOQ is but instead to give the vendor 3 QTYs to quote on, one for the minimum they think they can order and then in increments accordingly. For example if I wanted to make a wooden picture frame in China I might reach out to vendors and tell them that I am interested in QTYs of 1000/2500/5000 and ask them to quote on each QTY accordingly.  If the vendor really wants my business, they will quote me on my terms and will not mention their own MOQ, even though they may in fact have one.  I think this is really the only way to get around MOQ. But even this strategy has its limits because many vendors will just come back to you and tell you that they have an MOQ.

In short, this is why overseas sourcing is so challenging, because no matter how cheap the unit price is, you are not going to get that unit price unless you order a far bigger QTY of product than you might be able to sell.

 

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