Working with Small to Medium Sized Factories in China

I spent the week at factory in Jiangsu province. The owner, now retired, used to be a teacher before he opened his own factory some 25 years ago. One of the final motivations to move from education to business was that, in the early 80’s he as making the equivalent of approximately USD$8 a month (yes, eight dollars a month) working as a teacher—I was making almost that much an hour at a part time job in high school in the 80’s!He switched to business and never looked back. His factory now employs not only his immediate family, his second son runs the business now, but hundreds of local workers as well. They are expanding to a custom building complex that will house twice as many employees and triple production floor capacity. They have 5 to 10 production lines, less than 10 major products, a few hundred employees (less than 500), good local connections for logistics and supplies. They are honest, sincere and friend first, business partners second.But working with them isn’t always easy. This is the “reality” of their situation (and many that are similarly sized/experienced).1. They are good a few things that they do regularly. This factory, or example, has two products that they do over and over and have 20 years of international experience with. They are simple products that can be altered minimally with no change to the quality of the product. The product is sold both to the domestic and international market so they have a consistent and growing market for the same thing every month. In the last 5 years they’ve added another line of (simple) products for one of their two main clients that are doing very well.2. They are growing quickly as both the domestic and international markets expand. The boom of the Chinese economy has stretched into the smaller, mid level cities and these factories are growing as the economy looks for more resources and advantages for both the local markets and the competitive export market. Most of their growth is coming from two to three sources—two large clients, one domestic and one international trading company in Shanghai, that reorder the same things each month and have started to try them out on a couple of new items as well. The other source of new clients is tradeshows—that’s how I found them in 2003. The tradeshow clients are typically smaller inconsistent orders and in total make up less than 30% of their business.3. They most likely have a couple of large clients that they do the same product for over and over again—this keeps them in business and gives them some tradeshow cred. These two big clients are on all their literature and all over their tradeshow booth. This is at least 70% of their business and if either of these two clients leave, for any reason, they are going to be in big trouble.4. They probably don’t have very good or standardized QC processes. Indeed, because they have typically been servicing either the domestic market or only a couple of international clients with the same product/service they may not have any QC department at all. They have grown up with their two largest clients and know exactly what they want and expect. Each employee has the process down to memory and they have done the same thing every day—without QC. This is good if you are buying the same thing from them, but changes mean a new process and there is no established order for checking new products/processes. This is our biggest issue with them—fortunately we have our own QC and can leave a man in the factory for the length of the production cycle.5. They are growing so quickly that, while intentions are good, they are falling short in quality because of the in ability of the “family business” model to keep up with the new international level business they are attracting. They are going after bigger fish, and with the names they throw out and length of time they have been in business they appear bigger and more capable than they really are. This is NOT an attempt on their part to be dishonest. They are very very good people with whom we’ve had great experience, but do not know what they don’t know. Since they produce for X international brand they assume that everyone is the same and they’ve got that mastered—so what else is there?!6. The international standards/testing requirements are not even on their radar. We test all of our products with third party testing companies and introduced this process to them. They don’t understand the standards they have to meet, but don’t realize that annual testing, re-testing for minor changes and/or testing for new products (even with similar/same components) is still necessary.So how do you work successfully with a factory like this? There are a number of things that help.First, you realize that working with them has specific advantages not the least of which is probably price. We can make products with these folks for 1/3 of the price it would cost to do the same item in Guangdong Province. That’s huge and it makes up for the extra travel and QC expenses that we incur. Second, it’s a partnership, a process not just a quick one-off. We have invested significant time in transferring out QC experience to them and they respond by giving us service that we couldn’t get anywhere else. Third, there is significantly more time involved in the development of new items/products and we know this going in. Because we plan extra time, we have the ability to work throw what would, at a larger factory, be non-issues. Fourth, component parts must be controlled more than you’d expect. While this factory has the connections to get the suppliers/support they need for raw materials they don’t necessarily have the standards that we expect. We do a lot of QC on incoming materials and go out and do other things on our own too (printing, for example we do on our own and ship into them).The time and effort that we expend in working with them is exhausting and sometimes very frustrating. But the quality product we get for the low price we pay is the point of the relationship. We have great dinners together too.