Pre-Selecting a Manufacturer in China

August 31, 2009

Recently, I’ve read some posts and articles regarding trust or lack of trust in Chinese business partners. Trust can be seen as the expectation of honest and co-operative behavior. How do you know who you can trust? It doesn’t help that contracts in the west and China are seen quite differently. A written contract in the west is a legally binding document, just like in China. Though, in China, it is very common to renegotiate terms, in fact a contract more often mutates into a summary of intentions.

Luckily there are steps you can take to figure out where to place your trust.

1.    Who is it you are dealing with?

Ask your potential supplier to send you the copies of the official business registration documents. Immediately it becomes obvious if the company you are dealing with is officially registered or not, and what business scope was registered (manufacturing, trading, other). The business registration document must be renewed every year. The tax office confirms the successful renewal with an official stamp of the current year.

The company registration number is made up of 15 digits. A company that applied for registration, will receive a preliminary registration document, which has 12 digits. Some companies might claim they are fully registered but haven’t gone through the whole process, or worse failed to comply with the requirements. In any case extra caution is in order.

Google the company and the person you are dealing with, in Chinese. Any confirming or contradicting information is an indication for more or less trust. You will need the help of a Chinese speaker, since above information is only available in Chinese.

2.    Verify ISO 9001 and other quality standards

There are real and fake ISO certificates. A government body for quality control is able to verify the authenticity of certificates the factory presents to you.

Don’t be fooled, even though an ISO certificate shows that the factory underwent the process to comply with all requirements, which is time consuming and takes real commitment, it is NOT a guarantee that product quality will be immaculate.

3.    Order QTY matters

Generally speaking, the larger your order, the better the service you can get from a factory. The eagerness of the manufacturer (not necessarily of the salesperson) to get your order is an important indicator of what you can expect in a cooperation. Manufacturers take smaller orders in down times, though, service might suffer, as the following story illustrates.

Years ago I was working for a German wholesaler in their Shanghai office. I had finished the design of a tubular steel frame. After negotiations with several factories we placed a trial order of one 20’ container with a large factory (1000 workers) close to Hangzhou. They had all the machinery that was necessary for the production of our products, experienced welders/technicians, their own workshop for injection molded plastic parts, a good powder coating facility, and everything else you’d expect from a good manufacturer.

We had a reasonable quotation, had discussed all the fine points in Chinese, and a commitment that production time would be 30 days, after all moulds were finished. We signed a non-disclosure contract about our design and made a 30% down payment. The making of the moulds turned out to take longer than agreed. Finally, we had a prototype at hand that was close to what we were looking for. So we noted where improvements were necessary and gave the ok to go ahead with the production. By this time the factory had received a large order and we were bumped back on the production schedule. 50 days instead of 30 was the best they could do, they assured us. “And by the way, the steel price has increased recently, so unfortunately we need to adjust our quotation accordingly”, which they did.

At this point we were committed to this factory and dependent on getting the product to market as quickly as possible in order not to lose the sales season. When we visited the factory for final inspection we noticed that many parts were not welded at 90° angles, there were sharp edges, and powder coated surfaces were damaged because of careless assembly. The attention of QC during production and assembly was clearly somewhere else. In the end we accepted a partial shipment and agreed on reworking the remaining part.

Later we switched to a smaller factory where our orders received more attention.

4.    Big versus small

Bigger factories obviously can produce high volume and are able to manufacture most parts in-house. Prices are usually a bit higher compared to smaller factories. They usually have more experience with foreign buyers requirements and tend to have a more established quality control, just don’t expect it to be overly strict.

Smaller factories are very flexible and will often go out of their way to accommodate your needs. Good English speakers are rare in this environment, and frequent visits and supervision are paramount to successfully complete projects.

Dependent on your order qty, Chinese language ability, time and willingness to travel often, a manufacturer might or might not be your best choice. Alternatively, a good independent agent understands the politics within a manufacturing company, minimizes risks, and will find the right approach to get your project done.  

Once you compared prices and weighed the odds, you’ll be ready for the next step, factory visits. See with your own eyes if the picture that was painted by the sales person and the colorful website lives up to your expectation, BEFORE you commit yourself with down payments and producing any tooling. Good luck making the right decisions.

The Art of War

September 24, 2008

 How an Ancient Text Influences Chinese Business Culture.

 

 Successful business in China depends on one thing: knowing your business partner. To understand them, you must know what to expect from the Chinese business culture. Written 2500 years ago, Sun Tzu’s The Art of War maintains its status as the authority on effective strategizing and continues to be mandatory reading for corporate-bound Chinese. While topics like effective organization of troops and military maneuvers may not seem applicable to the professional world, these tactics have evolved into modern day Chinese business practices. Consequently, The Art of War is a great introduction for any company planning to do business in China.

 

Guanxi

 “The clever combatant looks to the effect of combined energy, and does not require too much from individuals.” Guanxi, the Mandarin word for relationship, drives business in China. Without it, any foreign businessperson in China will stumble into a number of unnecessary pitfalls. In China, the individual has little power while the group controls everything. Accordingly, a foreign businessperson must build a relationship with their Chinese suppliers. Many Westerners tend to consider lavish meals and long debates over tea as tinged with insincerity, and are hesitant to reciprocate. This reluctance is neither helpful nor conducive to building good business relationships in China. Spending extra time building a relationship grows trust, understanding and encourages good business transactions in the future.

 

Indirect Communication

“In all fighting, the direct method may be used for joining battle, but indirect methods will be needed in order to secure victory.” In the West, long meetings full of circuitous conversations are considered unnecessary, tedious, and unacceptable, which is quite the opposite of standard Chinese practices. Chinese tend to avoid direct confrontation, instead, gathering information through social situations. Informal gatherings allow the Chinese business partner to scope out their client. The simple and subtle getting-to-know-you questions allow them to evaluate your age, experience, and business potential.

 

Strategy

“Countries in which are precipitous cliffs with torrents running between, deep natural hollows, confined places, tangled thickets, quagmires and crevasses, should be left with all possible speed and not approached.” Tzu‘s message is simple: strategize. The Chinese are hard working, shrewd businesspeople. Suppliers are smart and find ways to put themselves in a favorable position, but they tend to think in the short term.  Consequently, they will agree to and even sign a contract without intending to follow it exactly. A contract is rather seen as a summary of intentions that can and will be renegotiated if any party is unhappy about it. In China, the moral framework differs from the West in that Chinese will not see their actions as deceptive.

 

Chinese business culture can easily feel like a maze of incomprehensible rituals and inconsistent rules. Consequently, a thorough understanding of the East-West differences is imperative to fruitful enterprises in China, without it, Western companies face a grave disadvantage. For the individual used to Western business formulas, the Chinese way may seem counterintuitive, frustrating, and even deceitful, but success is possible with some preparation. Remember, if you are going to play, you have to know the rules. Why not read them firsthand in Sun Tzu’s The Art of War?

Cutting out In the Middleman:Why Your Company Needs an Agent

July 14, 2008

No one wants to use a middleman if the job can be kept in-house. Trying to complete a project without the help of a mediator in China, however, can result in unnecessary complications. The divides of language, culture, and production standards can naturally lead to the disastrous outcomes that have made headlines in past years. But is it really that difficult? Don’t thousands of foreign companies come to China every year, produce excellent products, and yield high profits? Perhaps, but it’s not as easy as it looks.

1. Research takes time and requires presence.
The production process in China requires evaluating a supplier’s capacity to handle your project, determining quality, negotiating prices, sampling, performing a trial order, assessing the exporting situation, etc… Attempting to go through this process remotely or with inexperienced staff will greatly hinder the efficiency of your project. Hiring an agent who knows that doing business in China requires extensive face to face interactions and who can proactively minimize potential risks can save your company time, money, and frustration.

2. “You get what you inspect not what you expect,”
as international businessman Etienne Charlier says. Relying on information from factory sales staff may not be a good option because, in the end, they answer to their boss not to you. Often they are not well versed in technical issues and their reports to you might not reflect reality. An independent middleman’s job is to inspect the goods at crucial points of production, thereby, catching problems early.

3. Everything is possible, nothing is easy.
Misunderstanding culture and norms create a lot of the problems companies face in China. While many factories have English speaking staff, differences in communication can create a great divide and affect production. Here again is the need for a middleman, a person who understands the viewpoint of both sides and finds solutions to challenges that arise.

Setting out to do business in China requires a solid plan. A competent agent will look out for your best interests, is able to prevent problems before they occur, minimizes risk and save money for you. Before you start your new venture in China, why not consider hiring an experienced middleman.

Improve profits from your older products

July 14, 2008

Once your design has achieved good sales, you may be tempted to keep your product on the market indefinitely, but the market is fickle. Products cycle through stores, through the minds of consumers, and often end up old news as trends fade and consumers look for something fresh. The market becomes saturated with new, exciting products, and your once brilliant sales begin to decline. Everyone has your product, and they do not need more of the same. You have two options. One: create a new product. Envisioning an entirely new product, however, costs precious time and money and is not always effective. Two: redesign you product.
Redesign allows you to tweak the great ideas that have been a success in the past without completely throwing out the blueprints and starting over with an experimental product. Giving your product a new design revitalizes public interest and often makes previous customers, who may still own your merchandise, take a second look. Revamping an old product can bring it into the current marketplace and expand your audience of potential consumers.
At Source Products Asia, we not only specialize in product design but also redesign. We know that a good idea is a good idea and with some creativity, many products can be reintroduced into the marketplace with success. Our designers will evaluate your product and suggest alterations and improvements that will give your ideas and profits a longer life.
Whether you need design or redesign SPA’s product development team has the resources to help you renew your product, improve your profit margins, and extend the life cycle of your product.

Sitebuilding and prototyping

June 13, 2008

In building this web site, we have seen several similarities with our particular work, with is product design. Both web sites and products begin as ideas.

When we decided we wanted to get Source products Asia online, we started sensibly. Cindy and I hashed out some rough ideas, and then spent a few days discussing them.

While brainstorming is effective, it is only so for a limited amount of time. We discovered that we were unable to develop our vision further, without a more tangible base to build from.

Luckily, we stumbled across a content developer with the right mix of conceptual and tech skills. He took our idea, developed it further, and then presented a base to us.

With this base in place, we were able to develop our idea further. The result is this website, which we shall consider Source Products ver. 1.0.

* * *

The development of our website was interesting, because it mirrors the work that we do in product development.

When a customer feels an impulse to develop a product, they might come to us with very general ideas.

Like the fellow who helped with Source v. 1.0 (check out his site at www.4d-projections.com), we take rough ideas and then apply technical know-how, in order to present the client with realistic options to develop their idea further.

So, if you have an idea, why not contact us, to see if we can work to develop it together?

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