by David Dayton in 'Silk Road International'One of the stories that my father always retells to others is about the time that I called him from the top of the Great Wall. He was in Utah on a quiet Sunday morning and I had just climbed to the top of the Wall at Huanghua, near Beijing. I think that it blew his mind to get a call from out of the blue from so far away (this was before my parents had ever visited Asia and still thought that I was living in a Quonset hut out in a rice paddy somewhere).
Today, I am in Dubai speaking about doing business in China. At about 4AM today my dream of a belly dancer (jk) was interrupted by a phone call from Salt Lake City asking for more information concerning an AP interview about Foxconn that I gave last week while I was still in China. I'm always amazed at the more places I travel to, the more people I meet that I have connections with, or the more "home" can find still find me no matter where I am.
I've never been to Dubai before—amazing. Rich, hot, clean, busy. The Global Sources China Sourcing Show is the reason that I'm here. I spoke three times today, to three different groups of mostly Middle East and African buyers: new buyers to China, current China buyers looking to improve their margins and overall experience in China and then individual buyers who needed help with specific ongoing projects. More than 300 people attended the seminars and I spoke for hours afterward with individual buyers about concerns with Chinese suppliers.
It's no coincidence that the problems that these buyers have are the same as what buyers from other areas of the world are having in China as well. So this seems a good time to address some of the major ones. Top concerns with suppliers included the following.
1. Suppliers not meeting quality standards (partially buyers' fault). "I placed an order online and the quality of the goods that showed up was horrible/didn't match the samples/was unsellable/never showed up." My favorite quote recently came from a watch buyer who said, "We buy components from China and have them assembled in Switzerland. Swiss standards and Chinese manufacturing? That's an impossible combination." I think that I should have gone into the business of just listening to this story—it's the most common thing I hear working in Asia (second place would be, in Chinese, "Oh, your production standards are just too high.")
I've stated before that if you, as a buyer, receive a container of anything that is less than what you ordered it's mostly (if not completely) your fault. Yes, the supplier is to blame for shipping you crap, but you should never order, never ship and certainly never pay for anything that you've not inspected (3PQ). I can't really blame the Chinese suppliers for meeting the LCD, especially when the buyers don't (seem to) even care enough to pay $250 for a day of QC before they wire thousands or tens of thousands of dollars to a personal account. Sure, it's not honest. Sure, the supplier is not going to get any repeat business. But what else is going to happen to them? Nothing. Remember, China is basically amoral (not immoral) and so there is no guilt about taking advantage of a great opportunity.
So if it's the buyer's own fault, what can be done about it? Well first, before you ever order anything, in your contract or PO you need to specify that you'll be hiring 3PQ to inspect before you pay for anything. Second, have ALL samples sent to you (and then to your 3PQ) before you confirm that the supplier can start production. Third, have someone confirm your container loading—to make sure that the product you've QC-ed actually makes it into the container that is shipped to you.
2. Suppliers raising prices after the order is placed. Whether it's true or not in each individual case, prices do go up—and recently they've honestly been going up a lot. So is this a case of a lack of forecasting or a disregard for signed contracts or real uncontrollable changes in the COGs? Actually, it's some of each.
Prices are changing quickly as China manages both the valuation of the RMB and quite high inflation. Add into those facts the increase in rent and labor, and decrease in exports and you have an environment for radically changing prices—all true. But just because prices are going up does not mean that your price increase is both legit and your responsibility. Many a time, factories take orders, wait for prices to change (in their favor) and get burned and then make up and excuse for asking for more money. Many times they bid out a project and then find that their costs have changed and so they just pass the costs along to you ("Hey, it's not my fault the prices went up.") The mentality in China is, if the costs change the price changes too, regardless of contracts. Unless you have both enough leverage and time/money to fight this, you're probably going to lose something. But, as I've said before many many times, sometimes the best deal is to pay a little bit more for a little bit less than you originally contracted out for. That's not ideal, and it's not justification for factories to not forecast better, but it is often the hard reality.
3. "Suppliers" disappearing after a deposit or full balance is paid (partially buyers' fault, again). Let's be honest, while this does happen, it's rare. I've heard more "I'm afraid of this" stories than I've ever heard actual firsthand experiences—but I do know of a number of real experiences. And I've lost more money from buyers from "moral," "developed," western countries not paying their bills than I ever will from Chinese suppliers. So… what to do?
First, don't buy from anyone you find online without doing some DD first. Hire someone to visit (or visit yourself) the factory. Second, buy legal/business documentation about the company you'd like to work with. Third, talk with their other buyers—get referrals from them or call the owners of the products you see in their showroom. The more you know about your supplier before you pay any deposit, the less likely you are to be taken advantage of.
4. Traveling to and finding suppliers in China. For me, this is a no-brainer. I believe that the more time you or your representatives spend in a factory the better quality product you'll get out. This starts with the very beginning visit—BEFORE you ever order.
Making this trip is, I suppose, difficult for many who either don't speak Chinese, aren't adventurous, are on a budget or who already have jobs back home and can't leave for weeks at a time. But with the literally scores of shows in Hong Kong, Macau, Shenzhen, Dongguan and Guangzhou during the months of April and October, you can visit both thousands of booths and as many actual factories as you can take the time to see all in one trip. No need to worry about hotels, food, transportation either—you can arrange all of it, in English, through a travel agent, your hotel concierge or even with a couple of factories that you're planning on visiting. Don't expect to see more than one or two factories a day, but especially in the east coast provinces, you should be able to see whatever you want and do so in relative comfort and convenience.
Besides that, there is so much value in really seeing what's going on in China—not online, not in a show ("…not in a house, Sam let me be!"). It both changes (confirms? corrects?) your perspective of Chinese manufacturing and helps you make better decisions about suppliers. Being in the factory also shows commitment to the economic relationship and concern for the value of your product. You build a personal relationship with people in the factory and learn and understand what actually can and can't be done. You personally participate in the problem solving and know what to expect before the product is every shipped.
5. Is QC a 100 percent guarantee? If not, what good is it? The fly in the ointment—what good are days and hours of QC if there is still a chance that you'll get screwed? Think of it like this. If I told you that there was a 90 percent chance that you'll get killed if you walk through traffic across a busy intersection but only a 5 percent chance if you took the bridge, which would you choose? That's QC—sure the bridge could collapse. Sure a criminal could stab you while you crossed the bridge. But it's not likely.
QC dramatically raises your chance for survival (aka, getting sellable product). Not only do you know that some of the product has been checked, but that statistically your order is all correct AND your factory knows that there is a good (contractual) chance that you won't pay them if the product isn't correct.
For my money there is nothing that affects the quality of your product more than a few days of QC (tied to the balance payment, of course).