Chinese Sausages
May 30 Update:
“China is a fat, unhealthy kid. Its ignorant friends in the west encourage it to keep eating the same stuff in order to “maintain growth”. Sadly, this encouragement might mean that China will stick to its non-viable development model and never grow up.”
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There are just some things that are too good to be true. Campaign promises, true love and Chinese #’s are just a few of these things. Other example’s include: US Government numbers, supplier’s “true costs,” protein content, lead paint verifications, auto safety standards.
While you may not want to look under the hood, if it’s your money being spent in China you’d better look. And look with a microscope too.
Here are some common ways that we’ve seen people massage numbers in China (probably the same in other places too, but we’re talking about China).
1. Kickbacks. Everybody is doing it! If you don’t pay for everything yourself, your probably paying for someone else “bonus.” A friend of mine, a security official for Wal-Mart in China, told me that “you wouldn’t believe how many people are running [kickback] scams.” He told me a couple of stories and concluded, “It’s absolutely everywhere.”
2. Exaggerated costs. Unless you have a decent idea of the market prices of the raw materials and labor costs for your product you’re going to get hit here. Without some competing bids to give you a benchmark, at least, you’ve got no clue what your items should cost. Comparing costs in your home market with buying in China is like comparing apples to oranges (not commodities, of course). You need to know local costs (via competing bids and research into local materials prices.
3. Additional costs. This is what you get charged for if you don’t get a detailed bid from your vendors. When each part of the price is broken out you can compare what each price from each bidding supplier really is costing you. There will almost always be fees and expenses included into each product. Many are legitimate, but some are not. You can’t know this, though unless you have a detailed costs list.
4. Double billing. This happens quite often for fees and licenses that have already been paid. We also see it in costs for transportation (that was already included in a billing) or for packaging. If an item is not specifically listed out in the invoice then you’ll likely see an invoice for it later. Usually these “new” invoices are presented at strategic times, like when other projects are ready to ship and could be held up.
5. Unnecessary licenses/taxes/fees. This is a tough one–if you don’t know China, and the specific province and city that your supplier is working in, you can have both legitimate and illegitimate “official” fees applied to the invoice once production is completed. Be sure to ask others (other suppliers, other buyers, lawyers, etc.) to find out if the fees you’re being asked to pay are legitimate.
6. Testing fees. Charges for tests that never happened are all too common. One of the most common ploys is for a supplier to send documents in Chinese–assuming that anything with a stamp will pacify you (especially if you can’t read it). Another version of this is to send real testing documents for previously products/materials. Another version is to send altered versions of real documents–old tests with new dates, for example.
7. Hostage payments. One of things that happens often in China is suppliers to over promise and under deliver. Often suppliers think that if they’ve exported before they can do it again. Domestic suppliers, even if they ship exclusive to overseas clients, don’t always understand the reasoning behind specific standards or requirements. We have suppliers come back to us all the time saying, “Wow! You really are going to be that strict.” If you’ve been really picky on QC, for example, suppliers my be really angry or unsettled about the deal and ‘request’ payments earlier than previously agreed to. Often hurt feelings, insecurity about product approval or ability to pay will be covered by a ‘request’ to pay before anything leaves the factory. Another version is paying for outstanding balances on other projects before shipping completed production.
8. Cost increases. Anytime that you have extended production times, for whatever reason (legitimate or not), you can expect factories to ask for additional fees. (If the delays are your fault you can bank on these fees being invoiced to you.) Excuses for extra fees include: storage fees, exchange rate changes, changes in materials costs, increased labor costs–many of these are legitimate, but all of them all the time are not.
9. Unnecessary middlemen (front companies). Often there will be multiple levels of buyers in between the raw material provider and the factory. And sometimes a dizzying number of people between the supplier and the buyer too. Sometimes these really do provide a necessary service–QC, distribution, packaging. Sometimes there are a net work of salespeople that “sell” the product to themselves by passing it through another company (real or fake) just to mark it up. Two things that always amaze me about these types of “companies” are the amazingly small margins that they are willing to take and how many different companies can be involved in any single deal.
10. Flat out lies. Maybe everything here falls into this category already, especially if you’re being really strict. But sometimes it’s just worse than others. We’ve had suppliers make up stories to get more money than what was contracted and use every conceivable method known to man–all of the above, begging for money for their children, money for personal car or house payments and even flat out extortion. I was told once that if I didn’t back off on enforcing QC standards that the factory would talk to the govt about getting my visa revoked.
The best defense is, of course, a good offense. The keys to not getting snookered include: knowing your market, getting bids from competing suppliers, doing your research on wages, licenses, taxes and personally participating in as much of the process as possible. Double checking on all invoices and using different people for various sensitive portions of the purchase process will help too.
Of course all of these “mystery meats” are in every country. And, to be honest I’d take the Chinese versions right now over the ones the US is putting out. The US brand is not only filled with shit, but the packaging looks crappy too! At least China will keep buying (or not selling off) the US sausages so we’ve put off the day of reckoning for at least the next 4 years, which is really the ultimate (political) goal, right?
