The McDonalds of China sourcing

A start up apparel company was running a project by me this week. They have their designs and want to start sourcing in China. Needless to say, they want to order in very small QTYs and they wondered if sourcing on Alibaba was a good way to go. In general I do not advise sourcing on Alibaba because you just never know who you are dealing with and I have never met anyone who sourced on Alibaba who was not looking for a new vendor after six months. I like to think of Alibaba as the McDonalds of China procurement, in other words good for a quick order but not a healthy solution over the long-term.

The value of Alibaba as I see it is that it can give you a general idea about cost, MOQs and vendor location. I use it sometimes as just that, a research tool. If for example I want to find out where denim vendors are in numbers then I can easily do so with an advanced search on Alibaba.

And when giving it some more thought this week, as I prepared my reply to the startup that had emailed me, I realized that Alibaba is good for this: if you want to bring a design to fruition and get an idea of costs you can always find someone on Alibaba to do some samples for you. In other words, if your goal is simply to get started Alibaba is OK. And that is what I advised this company. I wrote to them as follows:

“….if you are just starting out and don’t have the budget and simply want to take a product from rough sketch to prototype then Alibaba is a good place I think.  You can at least get some samples made and perhaps a small production lot that will shed new light on your product and or design and give you a good idea of how much it will cost you to make your product. And you may be able to fulfill a small number of customer orders. But I would not go into any Alibaba sourcing project thinking you are going to find a vendor who is going to fulfill large orders with exacting QC standards for you. When you know that you really have a business, and are selling to specialty stores, if not big retailers, then that is when you really need to hit target costs, get product delivered on time and keep QC issues to a minimum. And that is when you need to look beyond Alibaba to more long-term partners.”

Here are some other posts on Alibaba

Sourcing on Alibaba

Alibaba as research tool

The risks of sourcing in Asia vis a vis sourcing in your own country

There was a discussion on Linked In the other day about the risk of sourcing in Asia vis a vis the US. The opinion of the person who initiated the discussion was that for US companies at least it is far less risky to source in the US than in Asia. I totally agree with this and I always encourage people who come to me about sourcing in Asia to make sure there are no alternatives at home first, at least for some component parts or packaging.

I did take issue with one thing that someone said, namely that the only advantage to sourcing in the US is that there is no language barrier. In fact, there are more advantages than that and below was my response:

In some ways it really depends on your industry and what your product is but I think there is often a huge disconnect on assumptions about quality and management when manufacturing overseas. A lot of vendors, for example in the handicraft industry, do not understand the exacting QC standards of their overseas customers. You can spell everything out for them and train them over and over but sometimes they just cannot understand why that little speck of paint or that loose thread is not acceptable. Or the vendor might understand but some of his workers might not. This is not done out of negligence but simply results when foreign workers are not exposed to the sophisticated markets they are sometimes asked to make product for. This then is why it is so necessary to have a presence overseas if you are manufacturing there, especially when you have design driven products.. And this is why I advise companies I work with that they must spend time with their vendors. As I put it to them, the 10,000 people in rural China who are making the product that you will deliver to Williams Sonoma have never been in a Williams Sonoma store. This is the challenge. But as I said, I think it depends on your industry and product.

I would add as well that management style differs from country to country and often it is not the language of communication that is the issue but it is the very essence of the communication itself. In some countries when vendors meet with a problem they try to solve the problem on their own rather than communicate to the customer that there is a problem in the first place. They do not want to lose face. In the US when there is a problem, the customer most likely will be consulted immediately and vendors will not be allowed to choose their own solutions. “

Another person pointed out, and rightly so, that there are often a lot of costs associated with overseas sourcing if not done correctly. My response:

Regarding costs, I agree with you 100% on this. I always tell people that “there is a cost to low cost.” and they should know this before they get involved with overseas vendors. If they are prepared to invest all they need to in order to reduce the risk of sourcing overseas, by all means go for it. There are tremendous advantages to overseas sourcing, if done right. If they are not prepared to do this then in the end they may find that manufacturing overseas cost them far more than they had anticipated.

IMG_2279>

Having all the specs for your product on file. A helpful tip

What people are saying about Mulberry Fields
“I have already learned a great deal about China and your business through your website and blog posts. Very impressive.”  a successful mompreneur in Toronto

BLOG POST

I had someone come to me recently and ask me to source a product for them. This is a design driven product which I don’t have any experience with so I asked the person for comprehensive specs. Not only do the specs help me to understand the product but, more importantly, complete specs help potential vendors considerably when they are deciding whether or not they can do the project and how much it will cost.  I have written on this before.

But sometimes trying to get specs out of clients is like pulling teeth. Yet I cannot stress enough the importance of giving a vendor all the info they need to help you make your product. Small business owners, especially mompreneurs, are phenomenally busy people and often they just don’t have the time to gather all the info on one of their products, e.g. pantones, grades and types of fabrics, materials etc etc the end result being that even they themselves do not understand their own product. But vendors are busy people too and it is probably more work for them to reverse engineer a product than for the customer to ask his/her current vendor what the product is made of.

A helpful tip is this: Any time you get a product from a China vendor, get the specs as well. If it is a book, ask what kind of paper it is printed on, what the finish is if any. If a textile item, get the pantones and fabric. If a plastic item find out what kind of plastic it is ABS or PP, PE etc etc. And keep this info on file so the next time you want to have a vendor quote on something, both you and he/she know exactly what is involved.  It will save both you and your vendor a lot of time and put your relationship on the right track.

http://www.theeastasiaco.com

DSCF0169

 

 

What can go wrong if you don’t do your due diligence in China

What people are saying about Mulberry Fields
“Your blog posts are excellent.”    a company in California with a presence in China.

I was thinking more today about vendor referrals and I came across this article from Money Magazine back in 2007. The article is not exactly current but the issue it addresses is, namely what can go wrong when you enter into a partnership with the wrong vendor, especially a vendor that someone else has referred you to.  I have heard so many stories like this over the years and the common denominator is always that the buying party did not check out their vendor thoroughly before giving them the order and/or did not inspect the order before it left China.

There are two lessons in this article: the first is not to take a vendor referral or hire a sourcing company without doing your due diligence. As someone who has been going to China for 25 years, I was astounded to read that there are apparently China sourcing companies, where the principals have never even been to China.  The second lesson is to manage your production in China aggressively.

Here is the link to the article.

http://money.cnn.com/2007/07/26/magazines/fsb/china_sourcing.fsb/index.htm

www.theeastasiaco.com

DSC07523

China factory location. Why this is important

What people are saying about Mulberry Fields
“I have read through quite a few of your blog posts and have enjoyed them very very much. We do business in China and face many of the challenges you describe. Much of what you write resonates with me and there are some very helpful tips”   – from a company in Utah

BLOG POST

It is always a good idea when you are considering a new vendor to ask where their factory is in relation to their office. Why is this important ? The reason is that your vendor will be giving your order to the factory. If the factory is at some distance from the vendor’s office then communication may be neither timely nor efficient. In fact, vendors do not like to spend time at factories which, in China, are usually out in the countryside. Roads in China can be rough with lengthy traffic bottlenecks and I don’t think anyone – vendors or their customers – enjoy sitting in a car for 3 hrs on a crumbling Chinese road. Some vendors, I would venture to say, only go out to their factories when there is an emergency, a very late order or when they have a buyer in town.

But if you have a design driven product with a lot of requirements you need your vendor to be at the factory so they can communicate your needs to the factory manager and the workers and monitor quality closely as the order proceeds. . Therefore location of office vis a vis factory is important. If your vendor’s office is more than an hour away from the factory you have to ask them how they communicate with the factory? Are there computers so design or production hiccups that cannot be communicated over the phone can be emailed? Do they have any kind of video conferencing facilities? This is a reason why buyers need to make factory visits. Only they can determine these things for themselves.

You also have to consider the factory’s distance from the subcontractors. I remember being at a factory a couple of years ago. Some of my customer’s order was being outsourced. I had no problem with this but I wanted to go see the subcontractors (usually cottage industries set up in proximity to the main factory). However, I was told that the subcontracting “factory” was about 2 hrs from the main factory and that the round trip might take much of the day. That told me right there that the main vendor was probably not spending much time with his subcontractors. Who was making sure they were doing the order correctly? Who was making sure they were on schedule? Villagers after all do not have cell phones, faxes, PCs, teleconferencing facilities.

Ideally you want to find a vendor whose factory is within an hour of their office and where the subcontractors are within 30 min from the factory. These are very reasonable distances to navigate.. If your vendor has a factory that is 2 hours away from his. /her office then you should be concerned.

http://www.theeastasiaco.com

DSCF0133

How to win in China

http://www.theeastasiaco.com

I got an email from a customer today. He was very happy with some samples I had sent him recently. We had requested samples from about 4-5 vendors over the past 4 months and although some vendors did not pass muster, one did. This is a design driven product and my customer has high standards. He wrote: “I just received the hats today and they look great! Even better than our originals.” I am sure he is very excited because the search for a new vendor has taken some time. My client’s first vendor kept raising prices on him and there were some quality issues with his last order. 10,000 hats he had to repair himself. That is when he came to me.

So it looks like we have found a new vendor. But it is far too early to celebrate. So much work still needs to be done. The first step should be to send someone up to inspect the vendor’s facility. Vendor visits are invaluable because until you actually see a vendor’s factory you have no idea who you are dealing with. Vendor visits also tell the vendor you are serious about doing business with them. They appreciate the visits and it is an opportunity for you to reinforce your quality standards and tell the vendor how you do business. Then you have to get the order to the vendor which means you first need the order yourself ( my client is in discussions with his customers but still does not have a hard order). It is important here not to wait too long can because if you do then things can change quickly. A vendor that was hungry for orders in Nov. 2012 may not be hungry for orders in April 2013. And who is to say that the vendor will not raise their costs after they get a first order, what happened with another client of mine as I detailed in a previous blog post. In the event the vendor does raise costs we have to find other vendors, something I am now working on.

In short there is just so much work to be done yet. Still if you find a vendor who can make a quality product and meet your target costs you should see yourself as going into the locker room at halftime with the lead. But don’t lose sight that there is still an entire half to play. How you manage your vendor in the second half will determine the outcome of your business.

Forgive the football analogy but this is Super Bowl Weekend. Enjoy the game !

IMG_2066

No inspection. Bad quality. Don’t blame your vendor.

http://www.theeastasiaco.com

I was reading another China blog today about an order gone bad. It was the same scenario we see over and over: Overseas company places an order in China; Overseas company does not inspect the order; China vendor delivers bad quality; Overseas company goes ballistic. I read the post and commented on it of course. But it got me to thinking about something. Whenever there is a bad shipment out of China the tendency is to blame the China vendor. But if you don’t inspect your order and it turns out something is wrong, then can you really blame the vendor? If you buy a pair of shoes without trying them on and you get home and the shoes are too big, whose fault is it?

I would add that it is true that a lot of vendors cut corners when you don’t look and that accounts for a significant amount of bad product out of China. Thus the need to inspect. But at the same time many vendors just don’t understand the sophisticated markets they are producing for and without the guidance of the buyer (in the form of incessant communication and detailed specs during pre-production and inspections during the main stages of production) they ship a lot of bad product. Thus, again, the need to inspect. Of course, when you inspect an order in China and see something that you don’t like, the SOP is to have the vendor fix the product in question before you allow them to ship it. You inspect it and OK, they ship it and you get what you ordered. Plain and simple in most cases.

Given China’s global standing as an emerging economy and its somewhat undeserved reputation as a country that churns out a lot of inferior quality product, I personally feel one can not fault a vendor for delivering poor quality product if the product has not been inspected by the buyer or a buyer designated third-party before the order leaves China.

DSC05848

Protecting your IP in China

A lot of companies that manufacture in China – both big and small – are worried about IP infringement by Chinese companies. When I used to work in the home textile and home decor industries this was a big concern for my employers, medium-sized companies with strong brands in the US markets.  And as a consultant now, some of the companies I work with ask me about IP in China and how they can protect themselves.

I read a blog post the other day in in which the blogger, a lawyer who advises companies on their China strategy – was advising companies big and small to protect their designs in China by registering their trademarks there. In China the first person to register a trademark owns the trademark.  In other words if you have a trademark in the US it is not covered in China unless you register it there as well.  Although I think this is good advice for big companies that can afford the fees to register a trademark in China I think for many small companies this can be a major and unnecessary expense. Is $ 600.00, what it costs to register a trademark in China, a major expense ? Not really. But then you have to consider that the trademark applies to only to a certain number of “goods” in your product classification.  For example, let’s say you have a logo and you want to protect this logo. If your line of product is children’s clothing then must spend between $ 500.00 and $700.00 0 to protect your logo in the clothing classification. But in the clothing classification there are over 300 separate “goods” specified, everything from shirt pockets to bonnet linings. Your initial trademark covers 10 goods only. For each additional “good” you want your trademark to cover you have to pay an additional fee ( maybe $25.00 t0 $ 50.00 per good). So you can see that it can get expensive.

The only reason you might want to consider registering a trademark is because of “trademark squatting” which is when a Chinese company takes your trademark and registers it in China under their own name. They can then prevent you from selling your product in China and/or exporting to your own country. Is this likely to happen ? Probably not unless you have a very popular product. When you read about “trademark squatting” it usually has to do with big name products like Pfizer, Coach, Adidas, etc etc. Should you as a small business be concerned ? Somewhat I suppose. And it is never a bad idea to run your situation by an IP lawyer. But if protecting your IP in China is going to be a major expense for you that will seriously impact your production, my advice would be to wait until you can afford to do something about it. And in the meantime do as a client of mine once did.  We were walking the Canton Fair together and my client spotted his own products being marketed by a Chinese company.  After a double take and a slight wince, he looked at me and laughed. He said, “I can’t believe it,” and then laughed again as we walked on.

Like · · Share