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The effects of short term mentality on sourcing programs

by Mike Bellamy in "The Essential Reference Guide to China Sourcing" book

Compared to their counterparts in the West, China’s managers and factory owners tend to focus more on generating revenue in the short term rather than thinking long term strategy. This is especially true of the mangers born in 1960 and before who lived thru the tremulous times of the Cultural Revolution and Great Leap Forward.

Times were so bad in China during the youth of this group that these days they still live by the creed “one bird in the hand is better than two in the bush”, because back then you may wake up to see that you have been sent to the country side for re-education and you can’t bring your bush OR your bird with you! This generation of factory owners is very focused on making stable profits on each order rather than taking short terms risk or losses in exchange for a future potential payoff.

The young managers and factory bosses (born 1965 and after) also have short term mentalities, but for different reasons. Themes of “economic stability” and “optimism about the future” have only come into play during the past 15 years, but in these present “economic boom years” young managers and factory owners see other young Chinese getting rich all around them and they have a tremendous “me too” drive to earn revenue in order to have a large home, new car and provide for their children in a way that is leaps and bounds better than what the past generation was able to provide. As Deng Xiaoping put it “too be rich is glorious”.

What does this short-term mentality mean for sourcing?

  • Ideally your business offer will make money for the supplier right away, or you risk them losing interest in your project. Or even worse, they may take your idea and try to sell it to other buyers if they feel there is no pay off in the near future with you. See notes in the Intellectual Property Protection chapter if this is a concern of yours.
  • I have had suppliers tell me they are “taking a loss” in the short term in order to keep the partnership open in the long term. But after reviewing the details, not once in my 10+ years of China sourcing did it turn out that they were actually taking a loss. So if your supplier kicks and screams about how much money they are losing, most likely it is a negotiation tactic.
  • Generally speaking, suppliers are less likely to take risks or make a strategic long term investment on items such as new production equipment or lines of business unless they feel there is a quick payoff. However, most suppliers are very willing to take risks when it is done with your money! So don’t let a supplier talk you into giving them a huge deposit or full payment in advance so they can buy equipment or start a new line of business around your order. This is a common tactic used by Chinese suppliers to hedge their bet. If it fails, you are out your deposit and they disappear.

Mike Bellamy is an Advisory Board Member & Featured Blogger at the not-for-profit China Sourcing Information Center. He is also the author of "The Essential Reference Guide to China Sourcing" and founder of PassageMaker Sourcing Solutions.

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