When a sample order takes too long it is time to worry

A client of mine told me today that it took him a few months to get samples from a new vendor in China. The only reasons I can think of are that either the vendor was super busy and not interested in doing a sample order for someone who is not yet a customer; or the vendor was subcontracting the sample order.  In either case it is not a good sign that samples would have taken so long. Most samples take a couple weeks.  A long sample order would be a month.  3 months for a sample screams unorganized.

When I negotiated with this vendor a few months ago, I found them very responsive.  And my client said that the quality of the samples he has received has been good. The only problem is the sample lead time.  In a situation like this I think you have to proceed carefully.  If my client has it in his budget, he should have someone go inspect the factory and talk to the manger to find out why the samples have taken so long. A visit to the factory would probably answer a lot of questions.   If my client does not have a factory audit in his budget then I think I would be very reluctant to give this vendor an order, the good quality of the samples notwithstanding.

I tend to look at sample orders as not only for testing the quality of a product but also for testing a vendor’s responsiveness and reliability.  And I like to tell people that if they have a lot of trouble with a sample order, then imagine how difficult it will be when they have a production order shipping against a cancellation date.  That is when China sourcing threatens your business.

A last thought:  I have been in this situation before.  You have a vendor that delivers you good quality samples within your target cost.  Or you meet a vendor at a trade show with a great product. But they are unreliable in other ways e.g. not showing a particularly friendly or cooperative attitude when solving problems, not doing things when they have promised.   As reluctant as you are you really need to move on.  Because as I said above if the relationship has problems early on, those problems will only get worse later.

Kitchen Anhui FE

Using an overseas 3PL to cut your international shipping costs

A couple former clients of mine have come to me recently asking me to help them find a 3PL, or Third Party Logistics, warehouse overseas. One of the clients is looking for a 3PL warehouse in China close to where they manufacture their product.  They have a lot of clients in Asia and are looking to cut their shipping costs. Currently all their product is shipped to the US and then they ship it out again to countries in Asia. So finding a warehouse in China that will ship their product directly for them is important.  The other client is looking for a contract warehouse in Europe.  They have been using one in the UK but that warehouse is closing so they are looking for another.  The interesting thing about this client is that their 3PL provider in the UK charges a percentage of sales and actually has an incentive to help my client drive sales.  This is a bit unusual as most 3PL providers charge based on volume and labor. But in reaching out to some 3PLs in Europe I did find a few who said they might be willing to work with this arrangement as well.

Needless to say, if your international customer base is growing enlisting the aid of a good 3PL can save you a lot in overhead and shipping.  However, you need to make sure you pick the right provider otherwise you risk an interruption in your supply chain.  If your 3PL suddenly goes out of business then you face a major problem with your customers, what has happened with my client whose UK 3PL has suddenly decided to close.  So longevity is a key here and you only want to pick a 3PL that has an established track record.  You also should ask for references.  Most 3PLs will be happy to pass these along.  And as you do when you look for a prospective supplier in China, there are a couple things to keep in mind:

  • Only approach 3PLs that service companies the size of your own. A large 3PL is probably not going to be interested in your business anyway.
  • Attach much importance to communication when evaluating 3PL providers.IMG_0064

FOB vs CIF

I had an inquiry today from someone who wants to move their CPG ( Consumer Packaged Good) production from the US to China.  They want to ship CIF which stands for Cost Insurance and Freight.  In a CIF transaction the supplier/exporter is responsible for assigning a carrier/vessel and insuring the cargo.  Once the vessel lands at the destination port the buyer/importer takes possession.  The main advantage to doing a China order CIF, as opposed to FOB ( Free on Board) is that the supplier handles all the shipping arrangements for you.  You simply have to pick up the cargo when it arrives and arrange for transportation to your warehouse. In theory CIF reduces the work load on the importer and may seem like the ideal arrangement for a first time importer who has no experience with international shipping, which can be quite complicated.  The downside to CIF however is considerable.  Your product will cost more because you are asking your supplier to bear more responsibility and not surprisingly most suppliers will look at a CIF proposal as an opportunity to pad their margins. In addition, you lose transparency on the real cost of your product.  The real cost of your product is what it costs to make and package your product.  Not what it costs to ship your product ( which is landed cost and which varies depending on a number of factors). You will also have no control over shipping.  If yours is not a time-sensitive order then CIF might be OK.  But if you need your product shipped on a timely basis, to fulfill orders, you will be taking a big risk because you will have no control over transit times and carriers.  In fact, your supplier may not choose the best carrier but the carrier who offers them the most preferential terms.  Your supplier will act in their best interests, not yours.

With an FOB order, on the other hand, the importer, working with a Logistics company, has complete control over shipping.  If problems arise you can work quickly with the carrier directly to resolve them.  The downside to FOB is that, yes, you need a Shipping or Logistics Company to help you arrange shipping. This is of course another cost, one of the hidden costs to overseas sourcing.  But you have to look at it as one of the necessary costs and you should be prepared to bear it.

In the end your expenditure will probably be the same, whether you allow your supplier to arrange shipping, resulting in a higher unit cost for your product, or whether you enlist the help of a Logistics company to help you arrange shipping and handle documentation.   It is when problems arise that you are far better off with your own shipping agent as opposed to trying to resolve problems with an anonymous shipping company that has been selected by your supplier.

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Three useful tips on doing business in China

I was reading the China Business Review the other day there was an article about protecting one’s IP in China.  The article was written by the founder of a small company who took his production to China in 2009 and who has experienced the ups and downs of overseas manufacturing. Although the article mostly details the challenges in finding a Chinese partner who is going to respect your IP, there is a lot of useful advice that pertains to sourcing in China as well.   Among the valuable lessons imparted in the article are as follows:

  • Confirming that your partner has the expertise to do your product. I think this is good advice. Too many people just assume a vendor can do a product because the vendor has assured them they can.  And how do you confirm ? Of course samples are very important and you never want to go with a supplier that cannot give you a near perfect sample.  But you also need to visit your prospective supplier’s facility to make sure they are not simply subcontracting your order out and that they have the capacity to do your orders.  And remember good samples is only a start. You need to ensure that your vendor will sustain your quality standards during production. And the only way to do this is with an inspection of the goods before they leave China
  • Clear and frequent communication.  The author of the article details how some of the poor prototypes he ordered early on were not as much the fault of the Chinese factory as they were the fault of his company who often provided insufficient product details.  This rings very true.  In fact, most small companies that source in China tend to omit important product details, simply because they do not understand their own products and/or are assuming that vendors will fill in those gaps on their own. As I often advise people, never make assumptions when you are doing business in China.  Tell your vendor everything.  And regard communication with your vendor as perhaps the most important aspect of your relationship, equally as important as cost and quality.
  • Have someone on your team who understands Chinese. The author hired a translator for their meetings in China. However, when 20 minute conversations in Chinese on technical and legal issues were being reduced to 30 second summaries they decided that far too important content was not being delivered to them.  They saw the need for a company employee who understood Chinese.

Here is a link to the article. China Business Review article 

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Podcast: How to source in China

I was the guest on a Podcast recently.  The program is hosted by Indie Brands a popular website for independent start ups.  There is a lot of useful information here for small businesses, whether sourcing in China or not.  Enjoy

Indie Brands Podcast Feb 2016

An American CEO who is jaded by China

I sat down yesterday with a local entrepreneur. He owns a chemical products company that he established ten years ago and the company has grown from 5 to 10 employees over the last year.   He wanted to talk to me about China or, more aptly put, he wanted to complain about China.  He detailed for me some of the challenges he has faced there over the last ten years.  Among the things he told me:

  • He hired a Chinese employee only to have that employ take his formulas and set up his own company in China. And then this ex-employee had the gall to approach his former boss and offer to be a supplier. Because the prices were good the American could not resist and he is now buying his own product from someone who stole that product from him!  I have heard these outrageous but true stories so many times before.   There is no way to avoid situations like this but by making sure you vett the people you are employing as thoroughly as possible. I should have asked about his hiring process but I didn’t. But a good tip is this if you are protective of your IP you should never hire anyone but a US citizen or permanent resident who can be held accountable under terms of an NDA.
  • As a side venture the entrepreneur tried to export California wine to China, under private label, only to find that he had to register his designs with the Chinese govt. and was forced to have a Joint Venture (JV) partner. He seemed to think this was just opening the door to getting ripped off again. Of course it is. But as I explained to him if you are making a good profit off of China, it shouldn’t bother you if your JV partner in China is making a good profit off of you.
  • He attempted to learn Chinese believing that it is very important to speak the language of the country where you are doing business. I couldn’t agree more.  He mentioned what a hard language it was to learn.   But he said that he was forced to give up his studies when the SARS epidemic broke out, believing that he would not be able to spend time in China to practice. I don’t know what to say here but it does not sound like he made a sustained effort.  And that is what it takes to learn Chinese, a sustained effort. It is a hard language. He is correct.
  • He wanted to know how I had avoided becoming jaded when dealing with China over the years. I told him about George Kates, an American antiquarian who lived in China in the 1930s and wrote a book about his experience entitled “The Years That Were Fat.” George Kates, The Years That Were Fat  Kates spent seven years in China and he said that in order to live in China the one thing that is most important is patience. So, yes, patience is the most important thing when you do business in China.  Another key to succeeding in China is that you have to like China.  If you don’t like China, don’t like the food, the people, the history or culture, it is probably not a place you should locate your business. You will get jaded quickly as I sense he has.

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China sourcing from the perspective of a Hong Kong Sourcing Agent

I had an email the other day from a Chinese sourcing agent who is based in Hong Kong, Chris Lo.  Chris said he enjoyed my blog and wanted to offer a few useful observations about sourcing in China from the perspective of an on-the-ground local Hong Kong sourcing manager.  Accordingly, here they are ( his observations in Italics ) :

  • Chris writes that when you deal with suppliers in China it is always good to use a factory with Hong Kong or Taiwanese management if you can find one.

This is correct.  The reason is obvious, the HK and Taiwanese managers are just more in tune with Western and Japanese business practices and they tend to manage their factories well.  The only caveat is that you will probably end up paying more for your product than you would were you to use a Chinese mainland managed factory.  Still, I think it is worth paying a little more to get better communication and often better quality and for this reason if you do have a choice between giving an order to a Hong Kong managed FTY or a Mainland managed FTY, you should always give the order to the Hong Kong/Taiwanese FTY even if the cost is greater.

  • Chris mentions that as the Guangdong Government is trying to phase out Low Cost Manufacturing, many industries are relocating to the Eastern China, Zhejiang, Shanghai, Jiangsu i.e. The Changjiang Delta area as opposed to the Pearl River Delta area in Guangdong. He says that he has heard from other Hong Kong based sourcing agents that the MOQs are very high in these areas now, while quality tends to lag.  One reason is that these are bigger FTYs and they need bigger orders to stay afloat.

That the Central Govt is trying to phase out Low Cost Manufacturing in the South of China has become something of a standard line in recent years.  Nothing new here.  But this is the first time I have heard  about higher MOQs and lower quality coming out of suppliers in Eastern China.  I think this makes sense because manufacturing around Shanghai, in places like Zhejiang and Jiangsu tends to be on a larger scale.  I have been in a lot of huge textile and furniture factories there over the years, much larger than anything I have ever seen in other parts of China. So it is quite natural that these bigger FTYs need bigger orders to stay afloat. I am not sure about the quality statement.  I think it depends on the industry and product.  I do think that the South is still a good choice to source products because the infrastructure and product knowledge have been there for several decades whereas only in recent years has other manufacturing moved up north. Of course I would qualify this by saying that once again it depends on the product and industry.

  • Chris mentions that Fujian Province is a good place to manufacture now. He says it is a very good place to send your apparel projects and that all of the big global brands have production there.

I was not aware of Fujian Province’s strength as a textile producing base. I have made 2-3 trips to Fujian Province over the last 10 years and my sense there is that prices are very low, but that quality is an issue.  But these were not textile orders I was working on so I would not know. Still, I would be a little cautious sourcing in Fujian Province. It does not have the infrastructure that the low cost South has, nor the sophistication that areas feeding Shanghai have e.g. Zhejiang and Jiangsu.

Finally I would like to quote Chris verbatim for something he says about the ease of online sourcing these days:

“Doing business in China without regular checking would have a high chance going wrong (but I guess it is same for everywhere.). So to me I’d like to comment also on the emerging e-platform, I think it is just for gaining exposure for the suppliers but you cannot do industrial production without directly getting to your supplier, having face to face meeting and in-line inspection; the old fashion way of visiting industry fairs, factory visits still has place a good value for doing so. Industrial production is not talking about selling one item with simple emails and clicks.” 

I like that about the “old-fashioned” way of sourcing.  I agree, it is just a much safer way to go about it. 

Thanks Chris !

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How to pick a China Sourcing company

I had an email from a South African company last week. They were reaching out to me to help them source self-balancing electric scooters, those cool scooters you see when you walk down the street in any major American city nowadays.  It just so happened that the company emailed another sourcing company at the same time and as they failed to bcc the email recipients, I could see the other company. Out of curiosity I looked at their webpage and saw that this is a Chinese sourcing company based in China.  As is so typical with China based sourcing companies, this company promises that the importing process will be cheap, fast and reliable, that is as long as you use their service. The website is full of information but when you read much of it you realize it does not say much.  For example there is a tab on “how to import furniture from China.”  It looks promising but when you click on the tab the gist of the lengthy text is that if you want to import furniture you need to find a good supplier.  And that’s all. There is nothing about the myriad of problems associated with sourcing furniture in China e.g. a factory’s drying facilities, the quality of hardware and lacquers, fumigation certificates  etc etc, a few of the things that come to mind when I think about importing furniture from China. Much of the text is cast in ungrammatical language and when they advise you to watch out for scams they spell it “scums.”  They say they have 6000 suppliers in their data base.  It looks good but how many of these suppliers are active suppliers of theirs they do not say.  I suspect very few. This is the kind of China sourcing company that often comes up when you do an online search.  But it is not the kind of company I would advise someone to use.

The kind of company I would recommend using is a sourcing company that spells out clearly the risks of sourcing from China.  Such a company I came across a couple of weeks ago.  They are located in the Midwest and the owner is a Chinese lady who has been helping US companies source industrial products in China for 20 years now.  There is a tab on the website of this company labelled “essential China advice” and it pretty much spells out the obstacles that one encounters when sourcing in China.  I read through it and I think it is excellent in terms of the advice it offers e.g. anticipate mistakes before they happen so you will be in a better position to deal with them when they do happen, if in fact you cannot circumvent them with adequate foresight; Do not make assumptions about your China partners and/or China orders but be on top of everything at all times; Don’t be in the habit of taking big risks; Play by the rules in China. And much more advice along these lines.  After reading this I come away thinking, wow, doing business in China is costly, challenging and there is no guarantee of success, what I knew all along, but what so many people do not know when they contact China based sourcing company and are told the process is easy. Here is the link to the company Good US based China sourcing company

In short when you are looking for a China sourcing company, don’t go with the people who tell you it will be easy. Go with the person who tells you it will be difficult and that you will need to stay the course, no matter how difficult.  And that you may not always succeed.  Go with the person who tells you that you will sometimes need to show up in China to meet the people who are making your product and helping you grow your business, and not those who tell  you that you don’t need to go to China and that they will manage everything for you.  In other words, when looking for someone to help you with you China sourcing use your common sense.

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The Shanghai Friendship Store

While I was writing my blog post for last week my thoughts suddenly went back to my early days in Shanghai when there was only one store which sold overseas products, The Shanghai Friendship Store, located on Beijing Rd. just off The Bund. The store was established in the 1950s to cater to overseas diplomats and their families who wanted imported goods while living in China. And when I lived there in the early 1990s it was the one store in Shanghai where you could buy a pair of Nike shoes, for example, or a Sony transistor radio, some Gilette razors or just a jar of Skippy Peanut Butter.  The Friendship store also sold a lot of touristy Chinese chachkies and it was a popular stop with large tourist groups who came to China in those early days.

The name, Friendship Store, was hardly eponymous because the service was atrocious, and the clerks glared more than they smiled. But in those days, people in China were not as friendly as they are now.  Yet, the Friendship Store, in spite of its dreary Soviet –era demeanor, mustiness and sulky, sometimes downright unfriendly service had all the cachet of a Saks Fifth Avenue among the Ex-Pats living in Shanghai. If you shopped at the Friendship store, you had money.

You needed a foreign passport to enter the store and there were always guards out front checking passports and making sure that no locals slipped past the large Foo Dogs placed at the entrance.  There was probably as much security outside the Friendship store as there was outside the US Consulate on Huai-Hai Rd.  Of course nowadays you can go down any street in Shanghai and find a Tiffany’s or Wayfair, or a Coach outlet store or a McDonalds.  But this is all recent and up until the mid 1990s many foreign goods were simply not available in China. Unless you found them at the Friendship Store.

The Friendship store only accepted Foreign Exchange Certificates (FEC), the currency issued to foreigners living in or visiting China. Up until 1995 foreigners, unless they possessed a Chinese ID or work card, were not allowed to spend the local currency, the RMB, even in Chinese stores. They had to shop only at select establishments that accepted FEC like the Friendship Store or KFC.  If all you had on hand was FEC but wanted some RMB, so you could shop in the local stores with your ID, the first place you would go would be the Friendship Store.  There out front you would find no shortage of money changers who wanted your FEC so they could buy luxury goods.

While writing this I went on Google to see if I could find any images of the old Friendship store. I could not find even one.  Instead I found images of  the new breed of Friendship stores, in Beijing, Shanghai and Guangzhou, glitzy, high end type shopping malls. Everyone is now welcome and all the clerks are smiling.  In other words, the Friendship Stores are now actually promoting friendship.

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Drop Shipping from China

I have gotten a couple of inquiries lately about drop shipping from China. Drop shipping, where the distributor or factory ships directly to a retail customer, is a of course a way to cut lead time and reduce costs substantially and at least here in the US it works. Drop shipping is a common feature of e-commerce nowadays with sites like EBAY and Amazon and even with many brick and mortar retail stores. But drop shipping out of China ? Hmmmm..I don’t think we are there yet.

One company that called me is an industry leader in a minor category of apparel and they wanted to ask me about finding a supplier in China who could drop ship to their customers in the US. They said they have a new CAD program which will allow customers to design a garment online and the factory in China will make the product from the online specifications as entered by the customer. I asked them what happens if what the customer orders is not what they get and they replied to me that would not happen because all the specs are there for the customer and vendor to see. The guy I talked with was insistent that there was no margin for error. This is a real company and theirs was a serious inquiry so I listened to them, politely. But all the while I am thinking to myself “these people do not understand China.” There are a few problems with this idea as follows:

  1. In overseas manufacturing something can always go wrong, no matter how simple the product seems. And, far from being simple, garment manufacturing is no walk in the park. I know because I used to work in Home Textiles.  Drop shipping garments made in China to individual customers in the US seems like it would be fraught with problems.  I can see massive returns based on incorrect sizing, color or quality. I mean, just because you show the vendor where the stitch goes does not mean they will put it there. As a vendor once said to me when I told him he should be able to find a solution for a simple problem we were facing “sometimes the easy things are the most difficult.”
  2. Few Chinese companies that I know of are going to be interested in doing orders like this. One reason is that it takes a lot of time to set up a production line and factories do not want to do it unless the order QTYs are large.  Although the US Company said their solution would be to bundle the orders so that factories were given an order for, say, 1000 units a month, it just would not be a big enough order to get many Chinese companies interested.    I should say here that a lot of small companies that come to me have ideas for products and they get very excited.  They think that all they have to do is to find a factory in China to make their product and they have got it made. They expect the factories they approach in China to share their enthusiasm and they don’t understand when the factory does not.  But factories want big orders.  They don’t care what the product is. They just want volume, because that is where they make their money, and if you can’t offer that to them, they just are not interested.
  3. The cost to send one garment from China to the US via an international carrier such as FEDEX or EMS, is from $30.00-50.00.  Needless to say that adds a lot of money to the product and I don’t think there are many customers who are going to be willing to absorb that kind of shipping cost on a $25.00 product.  And then when there are returns the cost goes up even more. No one is going to want to absorb that cost, neither the customer nor the manufacturer.

As I said, these are serious companies and one company even offered to fly me out to Denver to discuss the project with them. But I knew I would just be going there to tell them that they did not have the right idea about China, and that an idea to drop ship from China to the US was just not a smart idea, and not one I wanted part of,  so I politely declined.

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