By David Dayton in "Silk Road International"
No matter how well you plan, there are almost always problems that arise prior to shipping quality product from China. It's debatable whether China itself is inherently problematic or not, but sourcing, managing production and doing quality control from 5000 miles away (more or less) certainly is.
Problems typically crop up from areas that are either under-understood (business culture or the design of a new product, for example) or under-managed (lack of any of your own on-the-ground personnel for production, for example). These hurdles can be the death of any project regardless if China is involved or not. But working in China can add additional barriers into the production mix. A second language, new or relatively unknown suppliers, non-transparent sub suppliers and/or business practices, difficult to manage meeting and travel schedules. They all can add up to serious delays and/or cost overruns.
So, what to do?
Fortunately, you don't have to do anything by yourself anymore. Every problem you'll ever deal with has been dealt with already by others. China is not new, unknown or inscrutable. Chinese history, politics, dating, business culture, you name it, it's all been detailed and analyzed for you. All you have to do is to apply the (hard) lessons of others to your own situations. I know, easier said than done. So here's some things that I've found to be invaluable.
First, one trusted employee is worth their weight in gold. You're not going to find this person on the first try (that's the scary part) but it's worth it to keep trying to find this person. This might be a QC or it might be an office manager or it might be a finance person, but it's going to be someone that can be both involved in multiple projects and understand the "foreign" and Chinese perspective on things.
One of the things that you'll notice about ALL Chinese companies, no matter the size (remember the arrest of the Guome boss ordeal?), is that there is a relative involved in or managing the finance department. I've said it before and I'll say it again, Chinese people don't trust other Chinese people–so why should you?!
Probably the most important person after the one managing the money in your company is the person making the deal. I'm not talking about you or your lawyers writing the deals, I'm talking about the person that is negotiating how the deals actually get done–on the ground in the factories. This person, more than anyone else will structure how money is paid/received, how projects are completed and how problems are solved. They literally have their fingers in every pie in your business. If you don't speak Chinese then you'd better be praying every night that you can trust this person. And even if you do speak Chinese you need to be so confident in this person that you can let them put your company (or at least your company's cash) on the line each time they go into a meeting–because that's what they are doing.
The next person that you have to trust is your project managers. They are the people who make serious decisions about where things are done, about who gets involved in which QC issues, about how everyday problems are managed and what issues you're notified about and what they can handle themselves. These people, again, have access to a ton of money even if they don't pay any bills or have actual access to any accounts. These are the people (along with QC) that are always (and I promise you it really is ALWAYS) offered the kickbacks for orders (and delays and changes). These people are organizers and managers, not negotiators or QC. You pay them just to keep things going, to keep product flowing from all the sub-suppliers, to coordinate all the logistics, testing and other schedules.
I've shared it before, but had it confirmed to me again recently with some other people working in China, so I'll share it again: Your staff is getting offers for kickbacks all the time. And I really do mean ALL the time. On every order, one of the questions they are routinely being asked is "How much do you want for this project?" If they are honest (with you) and rejecting the offers you need them to be cutting the prices accordingly. Let me repeat that: YOUR STAFF IS GETTING OFFERED CASH BACK FOR EVERY SINGLE COMPONENT OF EVERY SINGLE ORDER IN CHINA (AND SOUTHEAST ASIA). IF THEY ARE HONEST, THEY ARE REJECTING THE OFFERS AND CUTTING YOUR PRICES. I don't care who you are. I don't care if you fire people for taking kickbacks. I don't care if you think that everyone in your company is as honest as the day is long. I will bet you any amount of money you want that if you don't know that this is happening (and you're not doing something about it) your employees are making money on your orders from the factories–and not even thinking twice about it. This is how business is done here. This is one reason why wages for college grads are so low. This is the honest to God truth. Believe it or keep losing money.
One more person that you have to trust is your QC. QC is the position that we've hired and fired the most in China. They will make or break your orders. They are usually the only one in the factory seeing actual production. They can be the ones getting the most money/extras and they can be the single best on-the-ground resource you have. If you train these guys well they will be a copy of you. If you find a good one, pay them well enough to keep them honest and keep them from leaving. They are totally worth it. If you find they are getting paid, make the firing very public (factories and other employees should all know all about it).
If you only have a couple of trusted people in your company I would suggest that a majority of these trusted people have to be Chinese–No, not a Chinese speaking foreigner and not a Hong Kongese and not even a Taiwanese. You need someone local that knows how the the local game is played. Now I know that there are a ton of smart overseas Chinese and a ton of Chinese speaking foreigners, but you need someone one that can tell you what's "meant" not just want is said. I'm not saying don't hirer the others, I'm just saying that you need at least some of your trusted inner circle to be locals so that you know exactly what is going on.
Second, unlike some other problems there isn't a language problem that you can't pay to solve. If you're still working in ESL then you're missing MOST of what's really going one. Not some, not part, not a bit, MOST of what's going on is not being relayed to you. This is a problem that money can solve–hire someone that is fluent in both Chinese and your language. And then train them to tell you what's going on–not just what's being said, but what's really going on. There is a big difference in what's said and what' happening and you need to know both. Of course the best way to do this is to learn Chinese yourself–it'll take you two years, full time, but you can do it. Or you can hire someone that you can depend on to follow you around 24/7.
Third, time up front saves money later. Do your due diligence on your potential suppliers BEFORE you pay them anything. Know what has to be done to get your product completed before you ever start asking questions to factories about the the process. Know the market prices for all your components and raw materials. Know the import taxes and duties in your destination countries on your goods before you ever start any work in China. Get more than one bid and get more than one factory approved to do production. Tie QC to payments and make sure that the factory is not only aware of this but in complete agreement from the top down. Make sure there are no problems with your documents and artwork.
Fourth, even a single day of QC early on can save your project time, money and problems later. To me this is the single most overlooked part of working in China. Have a 3PQ confirm that what you're paying for is actually being done. It can be as painless as just spending $300 to get a day of QC at about 25% of production and then another $300 to have 85% to 90% of the product confirmed again.
Fifth, Westerners typically think of cost, quality and time as the most important factors affecting any project. Your Chinese supplier is usually thinking cost, cost and face. Quality is such a vague concept that it's never a priority for your manufacturer–he'll do exactly what he's compelled to do and no more. There are so many levels of quality in China that you'll get only what you can enforce–why would they do anything more?
My friend Mike Bellamy always says: "All quality problems are really money problems." I rephrase it as "There isn't any quality problem that more of your money won't solve." So in this since, Chinese are thinking about quality, but it's more about how to afford quality not about the concept of doing things right.
Time is similar. There is nothing comparable in China to the delivery expectations of the Western box stores. Everything is flexible since everything in China is always changing and/or under construction. Hell, there was/is a 60 day traffic jam in Beijing–you think that every one of those orders was cancelled just because it was late? Of course not. Chinese don't work like that. You have to be understanding and flexible here or you'll have a heart attack.
If I had to make a guess, I'd say that most foreigners who have problems in China, most of them not knowing it, have problems because they can't read the signs–not the Chinese language signs, but the cultural ones. Maintenance of face and status are the only things that I can think of that will trump the desire to make money in China. There are many reasons for this, but one is the fact that if you have face/status historically you've still been able to make more money. But without that social position, you have nothing.
Americans especially are very direct about business and problems. We think it's "honest" and "just how things are done." But here it's insulting (even if it's true) and often the complete wrong way to get things done. In the US, where time is money, it's the best way to get the most done. We want to know what's wrong and why without wasting time guessing or beating around the bush. But when your country and culture is thousands of years old, there is much less urgency to each transaction. I have many clients come to China and before they get here they tell me they've scheduled something like one day each with a number of different suppliers and ask me what they should do to make things go smoothly. I always say: "Spend more time with each one–the more money you spend on them, the more time you should spend with them." Of course, no one ever takes my advice ("We've already booked our return tickets.") and so instead of doing what's best for millions of dollars of product, they do what's best for a $1000 plane ticket.
Time spent on relationships will save you money and problems.
Finally, sixth, China is as risky as you make it. Mike Lavine from BV once told me that he was amazed at how many foreigners come to China and think "Well, since China's such a big risk anyway, we're just going to throw all our SOP's out the window and jump in with both feet." Whither this is your conscious decision when coming to China or not, don't let it be your default position. Don't let a short trip force you into uninformed decisions. And just in case you didn’t know this yet, not being here in China when you’ve got production on-going greatly increases your risk.
China IS risky, but the level of risk is in direct proportion to the amount of research and effort you put into your China investment. Just because you've heard that due diligence is hard to do in China (true, it is), that doesn't mean that you just don't even try to do it. Instead, you should take more time and try to do more, not less. Just because you have your ticket home already, doesn't mean that you should agree to start production before you see samples. If you can’t be here, hire someone to do it for you–it’s well worth the money.
You can either learn from history (other's mistakes) or you can repeat it. Good luck!