China and Hong Kong

This is a sensitive time to be doing business with China because of the political situation in Hong Kong. At times like this you have to be very careful in your discussions with vendors to avoid talking about politics because most vendors in China are pro-Chinese government and probably not supportive of the protests in Hong Kong. I would add that whereas in the US we discuss politics openly, in China people are not in the habit of discussing politics, and the subject is slightly uncomfortable for them when you raise it ( the one exception is Japan bashing which is so commonplace in China as to seem part of the national character).

Yet over the years I have seen westerners who think nothing of trying to discuss human rights or politics with their Chinese vendors simply because they come from open societies where people discuss subjects of this nature, forgetting or simply just ignorant of the fact that they are in China, where discussions about democracy, human rights and politics in general are not things most people are used to or comfortable with. Their intent in raising these subjects with vendors sometimes is the result of sincere interest, yet more often it comes from a western tendency to lecture China. But one thing is certain and that is that vendors never react favorably although they may be polite enough.

So as interesting as the Hong Kong story may seem to you, it is best if you just ignore it. Or better yet go out of your way not to discuss it.

Do not always focus on Lead Time when you source in China

I visited a small company yesterday and the president of the company asked me at one point how to shorten lead times from China. It was a good question though I am not sure lead time should be of the utmost concern to him since his company sells high end audio equipment probably ordered in low QTYs. I told him I thought the best way to cut lead times was to make sure you were organized, to keep mistakes in design to a minimum and to make sure you maintained good communication with your vendor so that delivery dates were adhered to or the customer was notified immediately when they changed. In other words, the goal should not be to cut lead time but to get the product delivered when you need it. The more I thought about this answer the more I liked it, for over the years I have seen more mistakes happen when people tried to rush orders, thinking about reducing lead time, the end result being that product shipped late and the lead time was in fact lengthened, not shortened.

This is not to say that lead time should never be a concern for importers. For some high-volume, short life-cycle consumer goods, or seasonal goods, lead time is very important because if you don’t ship product ASAP you risk losing market share to your competitor. With orders of this nature the discussions with the vendor are always centered on cutting production time and getting product out of China as quickly as possible. But once again there has to be a point where you need to accept the fact that vendors have limitations as well in terms of what they can do and how fast they can do it. If you fail to recognize a vendors limitations then you risk having them make mistakes in production that will result in a slower delivery time as they have to repair or redo defective units.

In the end if you are focused on cutting lead times it is probably better to look at the shipping end than the production end. There are “fast boats” and “slow boats” and you can cut your shipping time by as much as 2 weeks if you pick the right carrier. If you have a good shipping agent you still should be able to cut significant lead time off your delivery. But then again you will pay more for this service and that adds more unit cost to your product. You simply have to ask yourself if it is worth it.

In the end, I always tell people to live by these rules if they want to get their product out of China quickly.

1.) Know when you need your order and communicate this clearly to the vendor,
2.) Give your vendor the order early and work with their production schedule, not yours.
3.) Make sure your design is finished. Nothing slows down orders more than changes in design.
4.) Follow up 2-3 times a week when an order is in production.
5.) Do not assume anything.

In China sourcing something is always lost in translation

Today a vendor sent me pics of a sample they had been working for me. When I forwarded them to my client she pointed out that the vendor failed to grasp one concept of the product and how it is used. I explained to her that this is perfectly normal and to be expected because it sometimes it just takes time for vendors to come to an understanding about a product they are being asked to make. The reason is that American products are different from those sold in China in many cases vendors are seeing a product for a first time. When they do they look at a new product they see it with the eyes of a Chinese consumer and not the end American consumer. When I used to work with basket vendors in China making gift baskets for the US market I ran into this problem all the time. A case in point: Chinese consumers favor glossy finishes on baskets while American consumers traditionally liked more matte finishes. The result was that we tended to get more baskets with glossy than with matte finishes. Even if the vendor understood our requirement some of his/her workers might not have. I would add that sometimes, if not often, Vendors in an effort to please their customers take liberties with design, changes they think enhance a product but changes which of course are not acceptable to importers with very specific product guidelines.

The best way to circumvent little surprises like this is to gradually educate your vendor about your product and standards and to check production at every step of the way to make sure they are getting it right. Put problem areas in red on your spec sheets and make sure vendors pay close attention to them. And never accuse your vendor of negligence if you get back a product that is not to your liking. Chances are the flaw is in the design or communication and you have to keep in mind that you are relying on your vendor to help you build your business.

In China sourcing always try to start small

One of my former clients called me today asking me to reach out to a vendor we had worked with before for a new quote. This client has been told by big retailers he is approaching that he must be at a certain price point in order for them to carry his product. So this means we have to reduce the price with vendors in China. The only way to do this is to increase order QTY. Nothing but simple economies of scale at work here. My customer knows this and so he wants me to run some large QTYs by vendors to see what we need to do in order to get the price down.

I told him that this was all fine and dandy but I advised him that it was extremely risky to give a big order to a vendor he had not yet tested with a series of small orders. As they say in Chinese干大事必须从小事干起. ( gan da shi bi xu cong xiao shi gan qi ) trans: Before you do something big you need to do something small. Giving a big order to a new vendor is something I would never advise doing unless a person were prepared to spend a month in China supervising production. Of course the expense of doing that would offset any savings from economies of scale.

And this is the fundamental problem in China sourcing for small businesses, how do you get a vendor interested in your business at costs that work for you without giving them a huge order and assuming a lot of risk ? 20 or 30 years ago this was not a problem as China vendors just wanted the orders, big or small and the US retail landscape was not so competitive. Things are different now and vendors want big orders. Unfortunately all you can do is to try to find a vendor who you can work with and start small. Much easier said that done I should point out. The only other option is to re-design your product to make it cheaper. And right now this is what I am advising my client to do. Right now, I think that is his only shot.

In China you need patience, patience and more patience

I have been exchanging emails this week with a San Francisco start up that wants to begin sourcing in China. Like all start ups here in the Bay Area these guys move fast. And they want me to move fast too. I gave them my timeline for a sourcing project which is generally 6-8 weeks and they said that was too long and that they were under pressure from their investor to get the ball rolling sooner. I have gone back to them this morning and told them I might be able to expedite the process by a week or two but after that I would really be pushing it. I explained to them that just getting samples to and from China can easily take 2-3 weeks. Their QTYs are also small, as this is their first order, and I told them that they would have a hard time pushing vendors unless they were really making it worthwhile for the vendor. NB. Dangling promises of bigger orders is not really an effective strategy when you are courting China vendors. The reason is that those small orders seldom turn into much larger orders and the vendors know it.

But this got me to thinking, what I have said so many times before, that it is important not to rush your orders when you do business in China. And this rule applies whether you are buying out of China or selling into China. Some big companies e.g. Best Buy, EBAY, Home Depot, Tesco et al have failed miserably in China because they rushed into China. Beginning in 2006 Home Depot opened 12 stores in China and six years later they were all closed. They might have done better in China had they opened just one or two stores and waited until those were doing well and the Home Depot brand was beginning to resonate with Chinese consumers. But when Home Depot left China no one noticed. Most people in China had never even heard of it.

As I like to say, when you do business in China you have to be patient, patient and more patient. And then when you think have exhausted your patience, you just have to be patient a little more.

Don’t believe success in China is cheap and easy

A client told me recently about a mompreneur who has achieved a small measure of success with a product sold widely in the UK and Australia. This mompreneur reportedly got started by placing a $ 1000.00 order with a China supplier she met on alibaba and my client is hoping she can start out with an equally minimal investment. As my client’s product is design driven and involves a custom mould and printed fabric I told her right there that her costs would be considerable. Mould costs and fabric minimums alone will run several thousands of dollars. But then I explained to my client that as dramatic as it sounds the mompreneur she had read about probably did not get started in China with such a small investment. Here were my reasons:

1.) A $ 1000.00 order out of China would mean that the vendor made a very small profit, just a few hundred dollars, or they just broke even. Most vendors in China I know do not do small orders with small foreign home-based businesses just to break even. Some vendors will take small orders but usually only from established companies where the hope is that the second order will be much larger than the first.

2.) I looked on her website and see that the mompreneur’s product retails for about $ 20.00 meaning that she probably gets it out of China for $7.00- $10.00. So a $ 1000.00 order would translate to between 100-150 units. No vendor I know of would accept such a small order.

3.) The mompreneur’s product includes a full color retail display box. No printer I have ever done business with is going to make up just 150 boxes. Printers have minimums and no printer is going to print up a mere 150 small boxes which probably cost no more than $0.10 each. Do the math: 150 boxes at $ 0.10 each is $ 15.00. Is any printer going to accept that order?

4.) Most Chinese companies with English speaking employees have a fair amount of overseas business (that is the only reason they would have someone who speaks English on their staff). In fact a lot of Chinese companies still do not retain any English speakers. It is unlikely that a company that already does a lot of business with overseas buyers would be interested in such a small order.

This is all pure speculation on my part. Of course I don’t know for certain that the mompreneur did not get started with such a minimal investment (this fact was apparently included in a newspaper article about her company). Who knows, it is possible she found a very small 3rd tier factory on alibaba who was in dire straits and desperate for an order. Plenty of those in China these days. But my common sense and 26 years of China wisdom tells me that the $1000.00 story is more hyperbole or creative marketing than actual fact.

In short, don’t always believe the small business rags to riches stories that you hear. More often than not they are not true. It takes time to build a business and, especially if you are in consumer goods, it usually takes a fair amount of cash as well.

A little wisdom goes a long way when you source in China

I had an inquiry from a small company in Australia this week. This inquiry was like so many I get from small companies or start-ups that have an idea for a product but no idea how to source it. I thought the individual who wrote to me showed great wisdom because she said she had been considering a trip to China to meet a supplier she had found on alibaba until she realized that that might not be a good idea. She wrote:

we had been planning to take a trip to China to get some samples and designs sorted with one supplier we had found online, but I decided we really didn’t know enough about what we were doing to take the step of flying there when ….. we didn’t have any back up options had we not been satisfied with them ( the supplier).

To this I replied:

You have made a wise decision in cancelling the trip to China, if all that would have been involved was meeting one supplier you met on alibaba. Those China trips are expensive, not to mention tiring, and you should always get as much out of them as you can.

My best advice to her was to line up some vendors over the next couple of months and then consider attending the Canton or Hong Kong sourcing fairs in the fall. At that time she could meet with all the vendors she had been in discussions with as well as many new vendors at the fairs. This is the way to start sourcing in China. Yet too many people I meet are just so anxious to get started, believing that they have re-invented the automobile, that they rush into an order with a supplier they know nothing about and what results is almost always a fiasco.

She went on to say how she had identified the need to work with someone who knows China as they get started over there.

We are now at the stage where we are ready to source a manufacturer and are ready to fly over there to get the ball rolling, but feel we need the services of someone with plenty of experience in this area to assist us in making sure we are doing so in the smartest, best-informed manner possible …… We obviously do not speak any of the language and although have both been on short holidays to China, are definitely not well acquainted with the country, so we would love to have someone who can source suppliers for us and who can help us to arrange our initial trip there and advise us on the process.

Smart thinking. Trying to navigate China on your own is just not wise. You can lose a lot of money there if you are not careful in your choice of suppliers. And even when you are careful you can still lose money if you let your guard down. It is just not an easy place to do business. The more knowledge you have on your team going in, the better you will do. If you have to pay for that knowledge I would say that is a good investment.

Valuable China sourcing lessons from Kenny G ? Yes, from Kenny G.

There was an article on Kenny G in the NY Times this weekend. Actually it was an article on the popularity of Kenny G in China where one of his songs, Going Home, has become part of the cultural landscape, played everywhere, in supermarkets, schools, shopping malls, etc. You cannot travel to China these days and not hear Going Home. It is everywhere. And that has been the case since it was released 25 years ago.

It was an interesting article because I remember well my introduction to Kenny G. I was a lecturer at the Shanghai Maritime Institute at the time and one of my students, Mr. Yu Shi Jie, came to my apartment one day. After a little chit-chat Mr. Yu surreptitiously pulled a cassette out of his black leather jacket ( this was after all China in 1990 when people were still fearful of any display of things Western ) and asked me if I wanted to hear “sex phone.” Thinking he had meant to say phone sex, which was popular in the US back then, I looked at him incredulously and asked “sex phone in China ?” He said yes and brazenly proceeded to put the cassette in a tape player sitting on my desk. I kind of cringed not knowing what to expect but as soon as I heard Kenny G’s alto sax coming out of the speaker, I just laughed. Mr Yu of course had meant to say Saxophone.

So that was my introduction to Kenny G in China. That was 1990 and in those days Going Home was played everywhere. After a year or two of incessant Going Home all of us in the ex-pat community in Shanghai were sick of Kenny G. So I was surprised to see that hit song, Going Home is still going strong in China some 25 years later.

But the article in the Times was interesting for another reason as well. Amazingly Kenny G receives no royalties for any of his music when it is played in China. But he does not mind. He is quoted as saying.

“Do I wish I could get paid for everything? Of course,” he said in a telephone interview. “But I surrender to the fact that that’s the way things go there.” Touring China in the 1990s, he heard “Going Home” playing in Tiananmen Square, in Shanghai, on a golf course and “in a restroom in the middle of nowhere,” he said. “It made me feel great to know there was no language barrier to connecting with music.”
There is a lot of wisdom in that statement “…I surrender to the fact that that’s the way things go there.”

One of the reasons so many foreign businesses have a difficult time in China is that they refuse to “surrender” to China’s way of doing things. They try to impose their own value system on the Chinese and they are offended when the Chinese reject it. They are very un-kenny G-like about the whole thing. IP is a good example. Many foreign businesses expect the Chinese to respect IP failing to understand that just 20 years ago the concept of IP did not even exist in China and that many people there, especially in under developed areas, still don’t understand it. In Kenny G;s words: “…that’s just the way things go there..”

Funny but I would say that Kenny G understands China more than some people who have been doing business there for years.

http://www.theeastasiaco.com

China’s tensions with Japan. It affects you too.

Japan and China have been sparring over the Diaoyu Islands since late 2012. The story has dominated headlines in China in that time and also in Japan periodically. Just the other day I looked to see what the most read stories in the Peoples Daily were and six of the ten most read stories had to do with the dispute with Japan. And this was during a week when things had settled down somewhat and the story had all but disappeared from the headlines in Japan. I thought this was very interesting and betrayed not only how the two nations look at themselves in relation to each other but also how they look at the rest of the world.

China’s dispute with Japan has resulted in major losses for Japanese businesses in China. Not unexpectedly, many Japanese businesses – small and large – are reevaluating their China strategy in the wake of the dispute with China. And Chinese vendors are not favorably disposed to Japanese businesses, as I found out on one occasion lat year. I had emailed a vendor in Yiwu for a price quotation and the vendor, seeing my address in Tokyo and thinking I was Japanese, sent me an email telling me that his company had suspended all relations with Japanese customers. He subsequently apologized and amended his statement when I told him I was American. I was surprised though that a company would go to such extreme measures to make a political point. Can you imagine if the US and China had an international incident and a small US company facing a cancellation date on an order could not get its product out of China?

What this means for you. Although one would not think that a dispute between China and Japan would have any impact on a western business in China, it does. The reason is that China is very sensitive about foreign aggression on its own soil, past and present. This includes not only the current dispute with Japan, but Japan’s aggression during the Second World War, the Opium and Cold Wars with the west and the US bombing of the Chinese Embassy in Belgrade in 1999 , which is never far from the surface in China-US disputes. In other words, when China feels wronged by Japan then it also feels wronged by any other country that has acted aggressively towards China over the years. I would add that the US and other western nations have been strong allies of Japan in the post-war period and the Chinese are aware of this.

For this reason, when China is involved in a major international row – even if it involves a country other than your own – vendors may not react kindly if they have any sense that you are lording over them, when a mistake has been made or something is not going as planned. You should always exercise a little sensitivity at these times and conduct business in the most professional manner possible. Or as I like to say, work with your vendors and not against them.

I would add that you should never discuss politics with your China vendor. If you are travelling to China be careful about being drawn into discussions about politics. In fact, just as you check the weather before you travel overseas, it is also a good idea to check the headlines in the major Chinese English newspapers just to see what things are like before your trip. These days, for example, in addition to the headlines about the dispute with Japan there are quite a few articles and editorials about China-US tensions in the Chinese papers.

And a wise piece of advice: try to avoid mentioning the Japanese when you travel to China. If your vendor brings up the subject, then politely remain silent or try to change the subject. These discussions can be fraught with misunderstanding and can lead to awkward situations which just do not help your relationship-building in China. In sum, when you go to China to do business, focus on business. And leave the politics at home.

http://www.theeastasiaco.com

Sourcing from China ? All the better if you like Chinese food

I have always said that one of the best things about doing business in China is that you have the opportunity to eat some great food. And make no mistake about it if you want real Chinese food you have to go to China. You just cannot find authentic Chinese food in NYC, San Francisco or Tokyo, three places I have lived at length and tried to find good Chinese restaurants. To no avail.

For me, three things stand out about Chinese food: the variety, the regional cuisines and the cost.

Variety: Case in point. A few years ago I was in Guangzhou and picked up a recipe book for soups in a local book store. This was just another recipe book in the food section of the book store but there were 2000 different recipes in this book ! And that is just soups and soups from just one province, Guangdong Province. And this mirrors my own experience living and travelling to China over the past 26 years. I can still go to China and, depending on where I am, I will have dishes I never tried before, much less heard of. And they usually turn out to be the best dishes I have ever had in my life.

Regional Cuisines. It is true that all countries have their own regional cuisines. In Japan, for example, there are many different types of Miso soup depending on which prefecture you are in. In Italy the same holds true; in the South they use more tomatoes and olive oil in cooking Still most dishes are the same regardless of where you are and in this respect food works somewhat like language. In other words, from region to region the idiom is the same with only slight variations. But in China it is different. In China when you walk into a restaurant in, say Hefei ( capital city of Anhui Province) you will find a menu entirely differnt from one in a restaurant in Shanghai.

Cost: When I lived in Shanghai some 15 years ago I used to eat regularly in a restaurant down the street from my apt. The tab for 3 or 4 dishes, rice and a couple bottles of beer was always under $ 10.00. Of course that was then. But food in China is still very cheap. In most cities, even in places like Shanghai and Beijing, you can walk into a pretty decent restaurant and eat for under $ $25.00 You can get dinner and drinks for a group of six people for proabaly not more than $ 100.00. If you went to one of the good Chinese restaurants here in San Francisco with a group of six it would probably cost you upwards of $ 300.00 -$400.00, San Francisco being what it is nowadays, one of the most expensive cities in the country.

A final thought: How much do you budget for food for a week in China ? The answer : Zero. If you are on an official vendor visit vendors will usually foot the bills for all of your meals. You will only have to pay for meals when your vendor is not present. Who could ask for more than that ?