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International apparel manufacturing and sourcing. If we don't make it, we can find it.

Posts Tagged ‘international business’

Working well with Chinese suppliers

Tanya Crossman

Tanya Crossman

Last week Renaud wrote a piece about working with Chinese suppliers I enjoyed.

He starts out by saying that when you first start working with Chinese suppliers, you may notice a need to change certain habits.

It is very important to define the product requirements in the smallest details, including the labeling and the packaging.

I’m with him here! It’s important not to make assumptions. Don’t rely upon the supplier’s “common sense”. The problem with this isn’t that your supplier is “stupid” but rather that he doesn’t know what you’re thinking. You have a clear idea in your head of what a label should look like, whether you realize it or not. It may be that you think it “obvious” what a label should look like. If you do not communicate these specifics clearly, don’t complain when the supplier goes with his own assumptions of what makes for a good label!

Labeling and packaging are aspects of production we have changed our system on over time. Originally, all product was shipped to our warehouse where we did our own quality control and per-piece inspection, before labelling and packaging every piece by hand, ensuring no mistakes. At the time, this was something our supplier could not handle to a standard which was acceptable to us. Over time, as we have trained our supplier and improved other aspects of production, we have moved more of the labeling and packaging tasks to the production factory. When punctuality, quality, quantity, and color tolerances were all happening well, we added these extra jobs.

Quality and timing are never guaranteed. Expect a very bad experience, and you might be pleasantly surprised.

If by “expect a bad situation” he means “plan for the worst” then I am in total agreement! Things go wrong. It happens. It happens when you’ve made the same product at the same factory with no problems before. It happens when you have time to recover and when you don’t. Having a contingency plan ahead of time saves time and stress when those unforeseen problems crop up. Some questions to think about:

  • What will I do if the product is not ready on time?
  • When do I need it, as opposed to when I want it?
  • How will I respond if product quality is unacceptable?
  • How do I prioritize different production values (punctuality, cost, quality…)?
  • What scenario would force me to cancel the order?

Monitor production closely and micro-manage the whole process.

Yes, yes, yes! Keep in regular contact with your supplier – make sure you know the specifics of what’s happening with production. This kind of micro-managing helps not because your supplier is not going to look out for you (although that can be the case on occasion) but rather that your supplier may well have a different set of values to you. He may value punctuality over quality, or price over time – whereas your values may be opposite. This shows out when things go wrong (which they inevitably do, eventually, even to the most reliable of suppliers). When a choice has to be made -such as “I can either get them done on time OR at the price/quality promised” – the supplier will do what seems best to HIM, which may not be your own preference.

If you know what’s going on at every step of production, you have a chance to step in and make those calls yourself, rather than finding out weeks later what the supplier decided to do. We have several times averted what could have been problematic issues simply by asking specific questions and letting our preferences/values be known. When production was inevitably delayed, we knew early enough to accomodate the delay, rather than promising a delivery date to our own buyers we would later find out we could not keep.

Don’t take everything they tell you for granted. Once production is under way, in 50% of cases you are not told the truth.

I don’t entirely agree here. Although there certainly are unscrupulous suppliers out there who will lie and cheat and do whatever they can to make a fast buck, these “deceptions” aren’t always so malicious in intent. Sometimes it is simply a case of different priorities, leadership styles, or manners of dealing with conflict. While it is good to assume you don’t have the whole story, let it be a healthy awareness rather than an overly suspicious nature.

Don’t promise anything beyond the next order. It is useless. Your counter-party thinks short-term and in a distributive manner (“there is a pie to share, and I want the bigger half”).

Again, I’m not in total agreement here. I absolutely believe you should never promise a future order you can’t guarantee you’ll be placing with your current supplier, longterm relationships are very beneficial. Saying you are going to place an order later won’t gain you any extra leverage with your current problems, but a history of placing regular orders will. Chinese suppliers look more at your past history than at future possibilities. While this means you have no benefit when starting out, it does mean there is benefit in sticking with an imperfect but proficient supplier rather than constantly looking for a better supplier every time. Over time, a supplier will learn your values, know what details you get upset over, and future orders (and problems) will be worked through more smoothly. (This is especially true when you work with smaller factories).

I remember working with a buyer who had set up a very strong (nearly bullet-proof) system for avoiding getting burned. . .He had a theory that once a relationship has turned sour–for whatever reason–he’d better cut his costs and stop everything right away with the supplier in question. I saw first-hand how brutally he acted against a poor supplier who had committed an involuntary mistake. . .That supplier got about 100,000 USD worth of product cancelled, and the importer lost a relatively good supplier. The bottom line is to try to understand the real situation. It is not easy, but it is far better than assuming the worse and resorting to knee-jerk reactions.

Here’s the important part – if you persevere through small/unintentional mistakes, problems that come from ignorance or bad planning rather than from malicious intent, you can train your supplier over time, improving their quality while building a relationship. Giving up at the first small sign of trouble means you’ll never realize the benefits of a long-term supplier relationship.

Do you have any long-term relationships with suppliers you cherish?
How have your supplier relationships changed over time?

3 Comments

Posted in : Business in China, Export, International Business, Manufacturing

Business Risks in China

Tanya Crossman

Tanya Crossman

I recently stumbled onto Thunder Post - there are some good posts on international business and I’ll take some more time to have a look around later. Right now I want to bring to your attention a post from November – an interview with Neal Beatty,  Regional Director (Global Client Services) with the company Control Risks.

Overall some good and solid advice; worth reading through the whole piece if you want a more detailed advice on business risks in China (read it here).

I enjoyed the way Neal pointed to a common sense, middle-road philosophy to risk in China. To treat China as the same as everywhere else is no worse than to think China is totally different to everywhere else. Some things hold true in every market; some differences have a huge effect on business.

Everyone’s read the books on “doing business in China” and that’s a great start for people new to the country. But that’s just scratching the surface, and often seems to lead managers to over-emphasize or over-simplify a few features of operating environment… There’s also a tendency even these days to get carried away with the “China is different” concept, and lose sight of commercial and risk-management principles and processes the company applies elsewhere. China is different in many ways and understanding the differences is vital, but that doesn’t mean there’s some mysterious formula here that only a few people understand – like everywhere else, you need a well-informed, comprehensive and rigorously planned out approach to managing risk, not silver bullets.
Neal was asked about risks common to business in China. Lots has been said about the risks associated with corruption and IP, but I was pleased to see Neal highlight risks in the supply chain and HR. Knowing where all the pieces are coming from is important – it can be difficult to control the supply chain in a place where subcontracting is extremely common. As for HR, it is important to be very clear on what labor laws require – there can be local requirements separate to national regulations. Hiring foreign staff also requires a lot of precision, including which companies can legally hire a resident alien and sponsor their work permit and visa.
One of the most serious potential risks to any business in China is the tacit acceptance of the “This is China” approach to business ethics and compliance issues… By condoning “low level” corruption within the organization, there is a serious risk of it getting out of control and in the worst case putting the entire operation in jeopardy. A zero tolerance approach is certainly not easy, and requires time, effort and budget, but I would say it is the best way to operate in China, just as in other parts of the world. And it is essential that senior management lay down the law and set out the company culture towards such issues from the very start.
Neal has touched on something very important here – the importance of senior management in making this part of company culture. The topic of corruption is raised in most Imports Oriental job interviews. We talk to shortlisted candidates about the value we place on honesty and integrity, including when it comes to bribes and other ways to curry favor. Employees sent to visit suppliers on site or at a trade show are given a clear policy on what they can/cannot accept from the supplier, services they are not permitted to provide, etc. These conversations can be uncomfortable, but are part of clarifying where the line in the sand is. For example, is it okay for the supplier to buy lunch for our staff in a nice restaurant? What should our staff not do with a potential supplier, even when done in order to build up a relationship? Laying down the answers to these questions, and the reason behind the choices, BEFORE someone is in the situation makes it clear what our company’s policies and expectations are.
I don’t believe Chinese people are any different in terms of morals or bad behavior than someone from Northern Ireland. But in China, there are cultural norms that sometimes conflict with the corporate expectations. For example, the concept of a conflict of interest is not understood in the same way as in the EU /US. To many Chinese people it seems perfectly reasonable to consider engaging a supplier owned by a family member or old school classmate. After all, I trust these people far more than some random supplier that approaches me at a trade fair.
A good example of the difference between a moral issue and a cultural issue. What may seem a clear-cut case of business ethics in the US or Europe may not be seen the same way in China.
Where these three areas (political v cultural v commercial) often overlap is when doing business away from the big Tier One cities. Generally speaking, the influence of local politics on local business is more unrestrained away from the biggest cities. This can pose its own set of unique risks that can only be mitigated by a very thorough due diligence process prior to forming a business relationship in that location.
Another reason to do your research ahead of time – even if you’ve been in China for a while, a new location may have different hoops to jump through.
I don’t think any company can run “risk free”, no matter what sector or what size of operation. From the largest MNC with multiple manufacturing and distribution facilities around China, to the “one-man-band” sourcing operation, everyone will face risks. Moreover, you can never reduce risk to zero. No matter how good your risk management program, there will always be someone who does something without considering the possible outcomes and impacts thoroughly, or simply faces a problem that couldn’t be anticipated or couldn’t be prevented. And thus you need to be able to react appropriately and have contingencies in place.  But a good awareness of the risks from the very beginning, along with regular (twice a year) reviews of your level of risk exposure, will go a long way to mitigating many of your operational risks.

I like that – it’s about mitigating operational risk through knowledge. Know the potential for problems, and know your current risk exposure.

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Posted in : Business Ethics, Business in China, International Business

Leverage – having a China presence changes the game

Tanya Crossman

Tanya Crossman

Today we’re looking at a recent post on Silk Road International. David talks about leverage, and how even a careful buyer can get into trouble when they don’t have enough of it.

David uses two cases studies to illustrate this. In one case, good preparation did not make up for a lack of in-person inspection, and a whole shipment of bad product resulted.

They had done almost everything correct.  But they didn’t have on-sight QC and when their product showed up incorrect, the small percentage (10%) they had retained for just this kind of situation was not enough to compensate for an entire order of unusable product.

In the second case, the company again prepared well, but full payment upfront meant there was no leverage for fixing problems down the track.

Both companies had the same basic problem–without some sort of physical presence in the factory neither of them had any leverage.  Once there were production problems (that cost time and/or money to resolve) the factory had no incentive to fix or replace anything.  And since neither of the companies had a presence in China they had no means of enforcing any of their demands (or even their originally contracted standards). I’d like to say that this is unusual and these two companies just had bad luck.  But the reality is that this is more common that not.

Having a presence in China makes a big difference when it comes to leverage in negotiations. If your supplier knows you can just get in a car or on a train and visit in a few hours’ time, he has greater incentive to keep you happy, and to resolve any problems that arise. If he knows you will visit to inspect product in the factory during production, he has a greater incentive to watch over production quality. If you are not in China yourself, having a trusted employee or agent on the ground can help.

Tying payments to QC inspection reports helps a ton.  As does being in the factory for critical production points (or having someone represent you there).  Remember, if you’re not doing your own QC or at least tying payments to QC reports, you’ve got no reason to expect that you’ll get what you’ve contracted for–you have no way to enforce your standards and the factory has no incentive not to save as much money as possible.

The important thing is to give the factory an incentive to meet your requirements (be it in terms of quality, punctuality, or cost). We regularly work with small factories. This makes us a higher priority customer (our orders form a larger part of the factory’s bottom line) but quality control can be a big issue in the beginning. We use a range of methods to improve quality. Continuing to work with the same factory over time, however, has many long term benefits, not the least of which being the build up of guanxi.

Our strategies included:

  • sending out own staff to train the factory’s quality inspectors
  • a contract stipulating we only pay for items that have passed our own independent QC (items than failed inspection were returned; we would pay for any that were suitably rectified and sent back to us)
  • a bonus for orders with a defect rate under 10%
  • when quality standards rose across the board, we focussed on improving adherence to schedule

One last point from David’s article:

It’s the same thing if you’re sourcing product or asking for samples.  If there is no incentive other than your word that “I’m going to place a really big order–there is so much potential here for us to make a ton of money!” then there is probably no chance that you’ll be anyone’s priority project… Remember, foreign clients are now a serious RISK.  The tables have turned in the last three years and you are now seen as a liability not an opportunity until you prove otherwise.  Without significant leverage, budget-conscious risk-adverse Chinese factories will just not take the gamble.

It’s a big risk to assume that as a foreign buyer you are automatically an attractive customer that any supplier would love to have. Even if you have been buying from China a long time, a new factory has no guarantee that you will buy big from them. There’s no shortcut – be a good customer, and over time you will prove yourself worthy of a supplier’s best efforts.

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Posted in : Business in China, Export, International Business, Manufacturing

Cultural sensitivity for international business

Tanya Crossman

Tanya Crossman

There was a fantastic 3-part post on the China Law blog the other week. A new contributor, Jason Patent, gave advice based on the idea that knowing the Chinese culture is a huge help to anyone doing business here. All three posts were very well written and worthy of a careful read.

I’m going to go through the general idea of each post, with some of my own thoughts and a few quotes. If you find it interesting, do go and read Jason’s original posts.

In Part I, Jason shared a story in which an experienced businessman who had done his research blew a great opportunity in China through a lack of cultural preparation.

This is an important topic for anyone planning to do business in China, whether directly or through an intermediary. Things are DIFFERENT. Whoever is on the ground needs to be culturally aware, and whoever is managing them needs to leave space for the differences culture brings.

If you are using an intermediary for your China dealings, try to listen to their explanations of situations that come up – don’t expect it to fit in the box of business in your own culture. If you can accept that the Chinese way is not “wrong,” but simply different, it will help you be more relaxed and, in the long run, effective.

I particularly enjoyed this quote from the summing up at the end of the post:

Business is not just business, despite our American insistence to the contrary. The only way to succeed in China is with the curiosity to examine our own beliefs and practices, and the humility to see other ways of doing things as equally valid. And the good sense to spend a bit of time and money now to save, and make, much more down the line.

Part II focused on ethics, and in particular, the perception that Chinese are less ethical in business than westerners.

A favorite critique by Westerners of China is that “the Chinese are unethical.” It is claimed that Chinese deceive, don’t stick to contracts, deliberately cheat. While few would deny that China can be a frustrating place for Westerners to do business, and while unethical behavior certainly occurs in China, claims of unethical behavior are often exaggerated, and result from Westerners’ own failure to understand the different background assumptions held by the Chinese.

Jason includes a chart which compares some of the values emphasized in China/the West, and the implications of these mismatches to business. For example, we may see a person’s behavior and, misunderstanding the intention of this behavior, assume they are trying to cheat us in some way.

The rub is that we have no access to anyone else’s intentions. All we have to go on is behavior. We observe a behavior, and attribute an intention, whether it’s accurate or not. The result: we make a lot of mistakes, often assuming evil intent where intent was either good or, at worst, indifferent. Whether we like it or not, we are wired to judge those around us based only on their behaviors, while at the same time judging ourselves based mostly on our intentions. That’s a cold, hard reality — but a good one to know about.

I really enjoyed reading this discussion. As Jason himself says, it’s not new information, but it is very important to business (and life) in a cross-cultural environment. I know that, personally speaking, understanding that behavior which frustrates me may have a different intention than I would naturally ascribe to it helps me be more at peace.

Giving others the benefit of the doubt (assuming their intentions are good) and then trying to clarify the situation with careful, calm questions helps greatly. This is not just in dealing with suppliers or customers (external parties) but even within your own company. There have been several occasions in Imports Oriental where misunderstood intentions have created unnecessary tension – tension which dissolved almost immediately once there was clarification.

Part III focused on stereotypes that we carry, and how they affect our perspective. Jason lists 9 stereotypes many Westerners carry into business dealings in China.

1. The Chinese are out to cheat me.
2. The Chinese think they’re superior.
3. The Chinese lie.
4. The Chinese go back on their word.
5. The Chinese are always stalling for time.
6. The Chinese are stingy.
7. The Chinese don’t care about quality.
8. The Chinese don’t care about their environment.
9. The Chinese hate Westerners.

Jason goes through each of the 9 and gives perspective on each – how these stereotypes can come about and explaining a bit of what can be behind them. There are unethical people in every culture, but labeling all Chinese as dishonest or liars is not the solution. I’ll end with a quote from Jason’s summary:

Categories can be useful. Reasoned, informed judgment can be useful. Stereotypes have zero business value. Get savvy about your own stereotypes and re-frame them. Not only will you feel better and get along better, but your business will do better.

1 Comment

Posted in : Business Ethics, Business in China, Entrepreneurs, International Business, Leadership

European Imports – changes to the ENS come into effect soon!

A quick note to point you to Renaud’s post today on the Entry Summary Declaration (ENS) and changes for shipping to Europe. The change was announced some time ago, but comes into effect right around now, so it’s a good time to look it over and be sure your shipper is in compliance.

There’s good information about the ENS on the websites of WCS Cargo and Hapag-Lloyd, as well.

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Posted in : Export, International Business

Best blogs about sourcing in China


Tanya Crossman

Tanya Crossman

A few weeks ago Imports Oriental was named as one of the best blogs for sourcing in China on Quality Inspection Tips blog (original post here). Here’s a quote from the article:

Imports Oriental Blog – I like Danny’s angle on some unique “Chinese cultural things”, and Tanya does a great job of spotting the best content from other blogs.

Other blogs Renaud listed include Silk Road International and China Law Blog – two excellent blogs that we also read regularly, and have linked to numerous times in the past. It’s humbling to be listed in such illustrious company!

We thought we’d let you in on some other sources we look to:

Foreign Entrepreneurs in China has a somewhat specific focus, but one that resonates deeply with us, obviously! Lots of helpful hints for those starting out or growing a business in China.

Chinese Negotiation is a top notch blog with great insights into how Chinese culture affects the way business works here. We regularly read posts by Andrew that connect very well with our own experiences and/or give us new ideas.

All Roads Lead To China contains a good blend of business and personal insights for the expat businessperson in China.

And, of course,

Silk Road International
China Law Blog
and
Quality Inspection Tips

So that’s 6 of our favorites. How about you? What sources do you go to for information on business in China?

1 Comment

Posted in : Business in China, Community, Entrepreneurs

In China, economic considerations aren’t the whole story

Tanya Crossman

Tanya Crossman

Last week Dan Harris posted his thoughts on an article by Joseph Sternberg, Editor of the Business Asia column at The Wall Street Journal. It’s worth dropping over to read the whole post, but I wanted to highlight Dan’s main point:

Like it or not, China no longer feels terribly inclined to care much about the foreign companies in its midst and it will not hesitate to place big picture politics over economics. Those who believe otherwise are neglecting real risk.

I couldn’t agree more. To say that China’s goal in all foreign policy is to increase economic opportunities for China is to oversimplify the situation beyond sense. The Chinese government is looking out for China’s interests, yes, but those interests are not merely economic. Political stability is a high priority, and at times this will supercede the priority of economic opportunity.

Anyone doing business in China needs to pay attention to the larger political landscape; economics alone will not tell you the whole story.

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Posted in : Business in China, International Business

Interview with Jill Coyle on “Expat Women” website

Jill Coyle was recently interviewed by Expat Women for the business ideas section of their website. The interview is now live on the site; you can read it here

Jill Coyle

Jill Coyle

Here’s a sneak peek – Jill’s 5 tips for women starting a business abroad:

1) Find support in all phases of your business

2) Take charge of your leadership development

3) “Do it afraid”

4) Create a plan that will make time for you

5) Discover your strength zone

7 Comments

Posted in : Business in China, Entrepreneurs, International Business

Should you choose to partner with Big Factories or Small Factories?

Danny Coyle

Danny Coyle

There are big differences in the way large, established factories operate, as opposed to smaller boutique-style factories. To choose the best manufacturer for your products, you must weigh the pros and cons.

From our experiences with manufacturing in China, we almost always choose to use small factories rather than big ones.

Here are a few reasons why:

  • Lower minimums
  • Usually cheaper
  • More flexible
  • Unaccustomed to working with Chinese-speaking foreigners (find it interesting)
  • More readily adjusted to our way of doing things

Flexibility

When choosing a factory, you must consider his attitude to project changes. A big factory requires its customers to be very precise and orderly. These factories do not like to take on a project unless all details are clearly confirmed up front. This sort of factory is uncomfortable proceeding on verbal instructions, especially when the orders are large  – they won’t just trust a foreign buyer’s word that this new method will work, or this new idea is going to sell big.

Of course, the smaller factories have their own set of headaches. Very few have English-speaking staff. Not all have adequate quality control systems in place. In manufacturing the types of products we sell, however, flexibility and responding to unknowns on the fly is important. Our bigger factories have a harder time with this. The flexibility we gain in working with smaller factories is worth the losses in other areas.

Guanxi

The most significant gain in doing business with smaller factories is guanxi. Guanxi, or relationship, is more easily built with smaller factories, as usually there is one factory owner you will deal with. All the accommodations made on both sides are carried forward with the same working relationship. When that one owner likes you, you have it made (although the converse is also true).

This is because the owner of a small factory is usually directly involved in production, overseeing all steps involved. Rather than an aloof observer waiting for information to be passed to his huge corner office, the small factory owner will hopefully be on the factory floor working with your order hands-on.

Communication is clearer and progress made faster, too, as you always talk with the decision-maker, not a salesperson who isn’t involved with production. Messages don’t have to be passed along the line, chewing up time and delaying progress.

If you experience headaches working with big companies, try a small one.  They have worked out for us.

Do you prefer working with big factories or small factories?
What other pros/cons have you noticed?

7 Comments

Posted in : Business in China, Manufacturing, Textile Industry

1 Country, 2 Systems: Compensation for Errors in the Chinese Manufacturing Industry

Danny Coyle

Danny Coyle

Chinese manufacturers know that foreigners do business differently. Some suppliers will try to use the Chinese method, but switch to the foreign method when that gives them a better deal.  Don’t get suckered into a 1 country, 2 systems business relationship.

The Chinese Way vs. the Western Way

As foreigners, we are so quick to think the western way is better, without really understanding the Chinese way.  Understanding the Chinese way helps you manage expectations and smoothes dealings with suppliers.

Delays are part of the game of manufacturing in whatever industry you are in.  Problems happen.  How we (foreigners) deal with those problems is what makes us different.  Not better, just different.

When a mistake is made, westerners generally expect immediate payback. When a problem happens in a Chinese factory, the payback rarely happens immediately. Compensation is not directly related to the problem itself.  The payback usually happens in the long term. While you may expect a discount on the order your factory made a mistake on, that does not always fit the Chinese model and may not happen.

I learned this more than ever last week.  We’ve had a few minor hiccups with one of our factories.  These problems were more annoying inconveniences than setbacks and deal breakers. If I was dealing with a foreign company, I’d probably ask for a discount on the invoice value.  I understood, however, that asking for monetary discounts or compensation on this order was not going to get the point across.  I realized that my payback was going to come on the next order.

Asking for an immediate response in the form of a discount would probably just insult the factory manager, and do more long term harm than good. So I’ll be content for the time being knowing that my return is coming on future orders.

BUT.

A Chinese factory may want to cheat the savvy foreigner over by combining the western and Chinese methods.   What we are talking about here is relationship (guanxi), so on my next order, I should experience an increase in ‘guanxi’.  That means he pushes my order to the front of the queue, or puts a few more laborers on our products and gives my order a little bit more time and attention.

If you are still getting a lack of attention, a high price, or further delays from the factory on the second order, then something’s wrong with the relationship. He took all the benefits of the Chinese way on the first order, and all the benefits of the western way on the second order.

The Conclusion

When the minor annoyances happened, I explained to my staff that we will pick only one way to deal with this problem. We will either do the Chinese way, or the Western way, but not both.  If he wants to give us a discount, great!  And if he wants to give us better service on the second order, fantastic.  But we must have one of those options (and preferably both) on future orders.

For China-savvy manufacturers: don’t let the “1 country, 2 systems” strategy infect your manufacturing processes!

Have you ever encountered a supplier trying to get the best of both worlds, at your expense?
What strategies do you employ when a mistake is made on your order?

Disclaimer:
I read an article that had a few sentences discussing the Chinese way of ‘payback on later orders’ idea on another blog; I think it was on Chinese Negotiation.  After my experience last week with our factory, I decided to write this article but can’t find the exact post I’d like to refer to.

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Posted in : Business Ethics, Business Relationships, Business in China, Manufacturing, Textile Industry

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