Silk Road International Blog

First, for those who attended the presentations and couldn’t receive the email with the PDF of the presentation, here are downloadable files of presentations from the Dubai show.  Parts One and Two.

Second, this is another follow up on the “feeling” of the Global Sources show in Dubai.  And while I’m not sure that this is good news—it now means that our worst fears are confirmed, problems in China are systemic—it is nice to know that “it’s not just me.”  Literally every one of the hundreds of buyers that I talked to last week in Dubai had issues with their Chinese suppliers.

SIDE NOTE: Out of the hundreds of buyers that I talked with, the percentage of traders/ wholesale buyers in Dubai was close to 90%.  Different from the Hong Kong shows, which are about 50/50 new start-ups or companies trying to go direct for the first time vs experienced buyers, the Dubai crowd was almost all buyers that had significant experience in China.  I’ve been working in East Asia for more than 15 years and I met more people with more years of experience in China than have every met at any other show before.  Also, there were buyers representing more than 100 countries at show as well.  If you’re looking for a single market place that services millions of people from three continents, Dubai is the place for business for Northern Africa, the Middle East/Southeastern Europe/India.

Buyers that have been working with China for 2-3 generations were asking me about dealing with supplier issues—most were just living with a very high rate of rejected product in each order.  As I mentioned last week, so many buyers had issues in fact that I started keeping notes on their issues.  Here are some more details on their list of concerns:

1. No respect for contracts. I say this in my presentations as a “caution,” that buyers should expect rounds of price negotiations from their Chinese suppliers.  When I said this time in Dubai, for the first time I received knowing-laughter from a large number of the attendees.
2. No honesty. Please don’t shoot the messenger.  I’m not saying that Chinese are not honest, I’m saying that both Westerners and Middle Easterners have issues with the ethics in China—and, if you’re a long time reader you know that Chinese themselves have this concern about buying from other Chinese as well. This isn’t exactly new or news and it certainly shouldn’t be seen as me being xenophobic or racist.  As the Chinese themselves say, “it’s cultural.”
3. No commitment to quality. Quality Fade is one thing, but the conscious and consistent attempt to lower quality to save money is another thing entirely.  One buyer that has been working with the same supplier for decades now shared with me that every other order or so he has to review and reiterate and re-test for the same quality standards.  Despite the fact that it’s the same product, the same standards and the same supplier, he’s found that if he doesn’t have the “standards discussion” at least once a month the quality will immediately and noticeable go down until the conversation is had again.
4. Always want to cut you out of the agreement. More than one businessman talked with us about the fact that large Chinese companies come into Yeman, SA, UAE and other areas here, start to work with locals, refuse to sign onto anything other than single-deal-contracts and then as soon as they knew the details of the end buyer they cut out all the locals and drop the prices to make sure that no matter what happens the locals can’t get back into the deal.
5. Not willing to share info about problems/delays. Contrary to the old adage, “No news is good news,” no news from you Chinese supplier usually means that they are either having issues and don’t want to tell you or trying to get substandard product on a boat ASAP so that it can’t be rejected.  Or both.  Most buyers are just expecting 10% or more of their container of good to be sub-standard and either have to discount it or trash it.
6. Willingly break the law to get a good deal. While there are ethical issues everywhere, in China where there is not even a history of any type of religious standards outside of the law, Chinese are seen to be all about the current deal and nothing else.  Many from the Middle East said that with any of their other suppliers and buyers a handshake sealed the deals.  But with Chinese there wasn’t anything that seemed to be more important than getting the deposit.  I’m sure that it’s true that (almost) everyone has their price, but it seams to be the consensus  that the “price” for most Chinese suppliers is very very low.
7. Not to belabor the point, but mentioned many times was the very nefarious practice of faking testing standards to make a deal. Not only is this dishonest, but it’s potentially very expensive and possible deadly too (depending on the test that’s being faked and the actual raw materials used). I was told that you can buy any testing document that you could ask for for about 1200RMB.  When real tests can cost thousands of USD, this is just one more reason why you do NOT want to give you Chinese supplier too much control over the final quality of your goods (or any more of the negotiations process than you absolutely have to).

The point is that when buying from China (and sure, probably other places too) buying problems exist regardless of where you’re coming from.  But hopefully this post helps a bit; when you can name the game, you don’t have to play, right?

 

Good luck!

 

Tags: Business, China, Culture by David Dayton
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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 quite Sunday AM 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 over-all experience in China and then individual buyers who needed help with specific on-going 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 buyers own fault, what can be done about it?  We’ll 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 your then to you 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 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 COG’s?  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 rents, 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 job back home and can’t leave for weeks at a time.  But with the literally scores of shows in Hong Kong, Macao, Zhenzhen, 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 1-2 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 is 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 made 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% 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% chance that you’ll get killed if you walk through traffic across a busy intersection but only a 5% chance if you took the bridge, which would you choose?  That’s QC—sure the bridge could collapse.  Sure 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).

Tags: Business, China, Culture by David Dayton
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