Vendor & Cost Reduction From China
1 – Are you paying too many innate costs from China?
2 – Are communications with Chinese hitting a barrier?
3 – Is it possible to buy better at the same time increase quality?
1 – Are you paying too many innate costs from China?
You may already be aware that 80%-90% of world goods are manufactured in China, and may it be quoted? just the other day I overheard a coffee shop conversation where one man said to another “our procurement is 100% from China” – Nowadays a very common statement.
However, as China has matured in both manufacturing and selling to the world, the reality is such that other issues have arose.
While it’s relatively easy to buy from China, internally China implements a very complex purchasing structure where a few, and in many situations several layers of innate costs quietly contribute towards “bumping up the overall costs”. Though due to culture and language indifferences, these innate costs almost always remain invisible.
What are these innate costs?
Number 1 – License – Licensed export factories (mainly 1st tier cities) often command more for goods. Why? simply stated – Officially, licensed factories are the only ones “licensed” to export out of China and that license can cost a great deal of money.
HOW TO GET AROUND THIS: Eke out second and third tier cities, go inland, purchase under a local company and export via your own company. It’s easier to achieve than often assumed.
Number 2 – Mentality – While an export license can on many occasions be purchased through alternative channels, mentality contributes heavily towards an inflation of costs simply because exporting overseas carries a premium (minimum of 5% to 20%) and in some cases, double or triple.
HOW TO GET AROUND THIS: Avoid using a western buyer, foreign or non-native buyer. Employ a local Chinese, use a trusted vetted agent, or employ a local Chinese from your side.
Number 3 – Shipping – Defined as exporting which could be ship, rail, or plane. All three routes carry innate internal costs and percentages that can and do make a huge differences to the bottom line. If you’re factory arranges exportation, then it’s more than probable they’ll be pulling back some hidden percentages and tax break/incentives.
HOW TO GET AROUND THIS: Employ a local Chinese, or employ a local Chinese from your side.
While some factories employ Chinese who speak relatively good English, the reality is such that time has proven the slightest indifference in both speech and written understanding leads to ineffective costs, reduced quality expectations, and at the outset. A downright dodgy product.
However, on the plus side. China’s willingness to communicate is strong, albeit weaknesses arises when faced with term “no problem“. This is everyday common language which translated back into Chinese is “Hao Da” (pronounced HOW DAA) yet it doesn’t really mean “no problem”. It means whatever you’ve asked for, or whatever your requirement may indeed hit several problems, yet that obstacle, issues or problem will often go unrecognised, or passed off as not existent. This happens not through ignorance or malice, it’s down to cultural education.
Problems in China are never considered problems until they manifest into a real life physical PROBLEM, and they become this way because as mentioned above it’s just not culturally socially acceptable to openly acknowledge any form of a problem. For any one person to put their head above the parapet and accept responsibility for an issue is practically unheard of in China, hence if you have a product or pricing issue, big or small, getting an answer and a quick resolve can become hard work.
On the plus side, Chinese can read and write English at far better levels than real-time listening to or speaking, therefore if and when issues do arise, it’s better to resort to BASIC writing through email than speaking in person or over the phone. Having worked, employed, and trained Chinese since 2003. Experience has taught that the average English-speaking Chinese who lives and works in China can process and understand between 40%-65% English. As good as China is, 100% fluency in understanding English isa rarity.
HOW TO GET AROUND COMMUNICATION ISSUES: Keep mails in very basic English, avoid criticism and judgement. A rule of thumb is to imagine your communicating with a child and use similar wording. Of course this is not to suggest that Chinese are children, yet bring to mind the Chinese language is pictorial. Chinese language is not based on logic, i.e. Chinese is simple characters that get straight to the point. In other words, when speaking to each other, they don’t beat around the bush.
Employ a local Chinese/English speaker. I mean employ one who has a thorough understanding of the English language as well as English business and culture. Yes these are a rare breed of people and not cheap to employ, yet what they save long run is well worth their weight in Gold.
Every buyer want’s to buy better at the same time increase quality, yet is it possible?
The short answer – YES!
HOW TO GET ACHIEVE THIS: Form your own company inside China for the sole purpose to vendor reduction, yet if you don’t want the hassle of doing it yourself, employ an agent/consultant to do it for you.
Once you have your own company (which nowadays is simple, quick and cheap to do), then you set about purchasing locally to consolidate all your goods into one point “inside China”. From this single point (normally inland such as a second or third tier city), you can then export out naturally extrapolating many of the innate costs.
For the quality side, “management” is the key. Not locally managed as they often work hand in hand, or could be paid off by the factory. Employ an external native Chinese to VISIT China and oversee production runs, and most importantly, oversee and check that container door before it gets closed. This is VITAL……