Check your orders before they leave China NOT after

I have had a lot of requests lately from people asking me to help them source in China, everything from kids clothing to electronic toys.  I do not take on just any product and usually if I am not interested in a project then I just point the person to a sourcing company in China who might be able to help them.   And the other day this was the case with a person who came to me asking me to help them source some smoking paraphernalia in China.  Not only am I opposed to smoking but I know nothing about it and for this reason I was not interested in accepting the project.  But the guy seemed nice enough and judging by the drawings he sent to me he is far along in his product development and is very serious about taking his product to market. So I gave him the name of my contact in China but I also gave him some parting advice. That advice was simply to inspect his orders BEFORE they left China.  This is the advice I give everyone but it occurred to me in that instant, when I was just thinking about one piece of useful advice I could offer someone who was about to start sourcing in China, that, yes, checking your orders before they ship from China is the only way you can guarantee that your vendor is delivering to you what you have paid for.  If you inspect an order in China and you don’t like what you see you can ask the vendor to redo the order or you can just walk away.   The most you stand to lose is your 30% deposit.  The analogy I always use when explaining this to people is the shoe analogy.  When you buy a pair of shoes the last thing you do at the register, before the sale is rung up and you take the shoes home, is to open the box to make sure the two shoes in the box are the same size, and that you have one left shoe and one right shoe.  And this is exactly what you have to do when you have an order shipping from China:  Verify.

The one caveat is that small companies or start ups operating on a budget do not have 5K to spend on a one week trip to China to inspect an order.  Or they may not see it as good business sense to spend 5K to go inspect an order, the value of which may be less than the cost of the trip to China itself. This is understandable until you figure that if that order goes badly then you will not only lose your investment but may lose customers and your business as well, assuming you have taken orders that you will not be able to fulfill.  I have one on and off client who got a bad order from China and four years later he is still selling off the defective product after repairing everything himself, piece by piece. I imagine it has also cost him a little money to warehouse the product, one container’s worth, in that time.  And this is what I mean when I tell people to take the broad view and to always see China sourcing as a long term strategy.  You may operate on razor thin margins at first or may even lose money but if this helps you get quality product to your customers and build your business it is probably worth it.

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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

Required reading for anyone thinking about sourcing in China

I was thinking this morning how many times over the years people have told me how they were cheated when they sourced in China. One of the better articles I have read on this subject appeared in 2013 in Inc Magazine.  The article describes the trials and tribulations of one entrepreneur from Ann Arbor Mi who learned the hard way that doing business in China is not easy. It is such Ona good article, in fact voted one of the best business articles in 2013, that I usually send the link to prospective clients who are approaching me to help them.  I see it as required reading for anyone who is thinking of doing business in China. INC Magazine article

 

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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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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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Never think you are a big fish when you source in China

If you are sourcing in China you have to remember one very important thing:  that your product may not be a priority for the vendor with whom you have placed an order.  Most factories in China, big and small, have a myriad of production orders going at any one time.  Walk into any workshop in China and you will likely see orders from all over the world, from the US, from South America, from Africa etc etc. I am always amazed at the global scope of production when I visit factories in China.  And some of these orders can be huge, tens of thousands of pcs depending on the product. You might think your 5,000 pc PO is a big deal but for your vendor it may only be a small order when compared with all the other orders he/she is doing at the moment.  I remember working on an apparel project a few years back.  The company that had retained me sent me to China to do an inspection of a 20,000 pc order.  For my client it was major order.  But when I showed up at the factory I realized that my client’s order was the smallest of several orders going at the same time.  The vendor told me that 20,000 pcs was not a big order and as such I could clearly see that it was not being given priority by the workers or management.  They told me a big order was over 100,000 pcs.  I was surprised and wondered if my client knew this as well.  I can’t remember but I don’t think they did.

Can you fault the vendor in this case ?  Not really.  They have to prioritize their orders and their business. It is only natural that they are not going to give a small order priority over a large one.  Ideally they should communicate this to their customer but in China it does not work that way.  Vendors can be pretty lacking in communication and that is one of the big challenges to sourcing in China. Can I fault my client ?  Somewhat I think because they failed to acknowledge that the vendor had other orders at the same time, even though they had been to the factory, just a few weeks before I was there, and had seen the other orders in process.  They simply believed that their order counted most. So when it came time to get the order out and the vendor was behind my client just pushed the vendor, the end result being that the relationship turned sour.   Had my client anticipated a delay and built some extra time into the production and delivery schedule to accommodate for the low priority their order was given things might have proceeded more smoothly.

So how can you know if the vendor is prioritizing your order or not ?   Well the first step is before you do business with a China vendor, ask them about the size of their orders and what they regard as a small order, what they regard as a big order etc etc.  They will probably inflate these numbers wanting to lead you to believe they have and can do big orders.  But their reply will nevertheless give you a very rough idea of what to expect when you place an order with that particular vendor. For example, if you meet a vendor at the Canton Fair who makes shoes and s/he tells you that an average order for him is 5000 pairs of shoes and that a big order is 20,000 pairs, you will know that if you give them an order for 1000 pairs, it will likely not be a priority order for them.   You might even ask a vendor to show you a hard copy of an order for a large QTY.  You can tell them that you just want to verify that they can do what they say they can do.  And ask a vendor before you place an order what other orders you are going to be competing with ?  For some reason this is not a question that most importers are in the habit of asking their vendors, their thinking being that only their order counts.  But I don’t think it is a bad idea to try to find out what are going to be the challenges and potential delays once you place your order.

Finally, if you can, make a trip to China to inspect your order in process.  Simply by walking around a workshop while your order is in process will give you a very good idea of how a vendor is prioritizing things.  If only a little space is being devoted to your product, well, you know you have a problem in spite of your vendor’s reassurances.

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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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How to schedule new vendor visits when in China

I got an email the other day from someone who was headed over to China to inspect an order and wanted to find out how they could perhaps meet some new vendors while they were over there. They were not leaving themselves much time as they were set to leave in 24 hrs when they emailed me. I told them that the best thing to do was to line up these visits well before their trip but as that did not happen this time, there were still two things they could do as follows:

1.) Do a vendor search by province and city on the Canton Fair website.  The website allows you to do this and it is very helpful if you want to locate vendors in a specific city, as this person wanted to do.  You can then type in the keyword for your product and you will get some results.  For example, when I typed in “toys” for Dongguan City in Guangdong Province I got 14 results. I think you can do the same on Alibaba.

2.) Work through the concierge at the local hotel. Depending on which hotel you are staying at in China concierges will do everything for you and this would include looking up factories that might be of interest to you. Of course they won’t be able to do much beyond giving you a name and number, but really that is all you need to begin. If the vendor has booked the hotel for you then you don’t want to ask the concierge for help with a project of this nature. The reason is that the hotel would most likely report to the vendor that you were looking for other vendors and your vendor would not be happy. I have seen this happen before. Vendors get possessive with their customers, especially if your orders are big, and they always want to keep an eye on you to make sure you are not running off to the competition on your off day. However, If you have booked the hotel yourself it is probably safe to ask the concierge to help you locate other vendors while you are in China. You can also perhaps ask someone in the hotel business center to do this for you but you would probably have to pay them for this.

Finally, it is a good idea if you are spending any length of time in a city or going back repeatedly to get to know some locals, perhaps a student who is looking for some translator work. This person can then help you on inquires of this nature and may be able to do things for you such as booking hotels and transportation. In fact when you go to the Canton Fair you will see hundreds of students outside the main hall looking for translator work during the fair. Knowing locals like this can be extremely helpful as you develop your business in China.  Just remember that if you do hire someone to help you out on a regular basis then you need to do so in accordance with the labor laws in China.

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5 assumptions NOT to make when you do business in China

There was an interview in the China Daily recently with the President of the American Chamber of commerce in China, Ken Jarrett. Jarrett was discussing the need for American companies that sell into China to adapt their product to local tastes. In Jarrett’s words “My advice for forthcoming US companies is to be aware of what is different about consumers here. You can’t assume that the product you have in the US has the same attraction here, so you need to adjust it,” There is a lot of wisdom in this statement and it should be applicable to companies that source in China as well. In other words, when you source in China you have to respect Chinese business customs and you need to be careful not to make the same assumptions about behavior that you make in your own country. Here are five assumptions that I have seen US companies make in China that just lead to problems.

  1. My production will be every bit as good as my sample. Not so. A sample should simply be regarded as an example of the vendor’s capabilities and nothing more.  If the vendor can do a sample to your liking that is big step forward. But there is a long way to go to ensure that your entire production looks like that sample.
  2. My vendor will implement my design changes. Although a vendor may tell you they will make the changes you suggest, they may not if these changes involve too much cost. It is very important to try to maintain a dialogue with your vendor about the cost of the project and reassure them if they see added costs.
  3. My vendor will inspect my order. Vendors put very little into inspections. They can sometimes be remarkably short-sighted in terms of making sure they deliver a good product to their customer.  Often, they want to ship the product ASAP and get paid, not caring if a subsequent order will materialize or not. The burden is on the buyer to inspect their own product, whether they do that on their own or through a third party inspection firm in China.
  4. My order will ship according to the date on the PO.  ALWAYS be prepared for the likelihood that your order will ship late.
  5. My vendor will do what they have promised.  A promise in China sometimes means very little. When a vendor promises you something don’t believe it. Instead keep talking about it and make sure they do it.

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Using online payment systems when you source in China

Until recently whenever you wanted to pay a sample fee to a vendor in China you would have to send a bank wire. Service charges for a wire transfer run between $30.00 -$50.00 and the wire can take up to a week to go through, although the ave time is 2-3 days. Not to mention the fact that you have to spend time to go to the bank and do all the paperwork for the wire transfer. Nowadays however, more and more vendors will accept Paypal as a way to pay for samples. I would say that whereas two years ago maybe one in ten vendors would have accepted Paypal, now it seems that about 50% of vendors will accept PayPal for sample fees. The advantages for you, the buyer, are obvious. Paying a vendor thru PayPal will save you a lot of time and a little money. PayPal also protects you if do not receive the samples or if the samples are not what you were expecting.

However, all this is not to say there will not be problems. A case in point: I have a client now who is ordering some samples from a vendor in China. This is a vendor who accepts PayPal. Last week I had an email from the vendor telling me that the samples were ready to go as soon as the sample fee was paid by my client. So I told my client who wrote back that he had already made a PayPal payment to the vendor several days previous to the vendor’s email. I checked again with the vendor who told me that there was no record of the PayPal payment from my client. We went back and forth for a few days and finally discovered the problem which was simply that the vendor was taking PayPal payments through his gmail address. However since Google is persona non grata in China the payments were not going through. So the vendor had to register another email address with PayPal and overall we lost about 4-5 days because of this. PayPal in China still has growing pains.

One other method of payment that many vendors accept nowadays is alipay which is Alibaba’s online payment system, and the largest payment system in China. Many vendors who sell on taobao.com (China’s equivalent of Amazon) use alipay as their payment system and the reviews are generally good. However, I would not recommend you use a China based payment system to pay for your sample fees for the simple reason that if you have a problem it may be hard to resolve it. If for example a vendor accepted alipay or wire transfer I would probably just opt for the wire transfer, time consuming as it is.

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