4 Ways to Combat China Price Increases without Raising Prices to your Customer

Inflation in China is soaring and price increases are being exported to the developed world. Customers are finding that factories are increasing prices almost weekly or biweekly depending on the product. Customers requiring their price quotes in US Dollars are finding their quotes only good for one or two weeks.

On the other hand, your distributor or wholesale customers will not accept price increases every week, nor if you’re involved in retail will the final consumer accept this. Even if they did accept the price increases, it’s not cheap to update your catalogues, your websites, re-train staff, etc. Given the fact that inflation is real and that prices will increase, how can you best plan for this and minimize the negative effects to your business? Readers of SourceJuice are sending emails, asking what we recommend to help them through these difficult times.

SourceJuice recommends you to take a good look at the products you’re selling and sourcing and do an analysis of ways you can decrease production costs, while still maintaining the quality of your products. We’ve developed a top 4 list that can help get you started with your analysis.

1. Adjust Your Packaging Size, Colors and Materials
Packaging often makes up a significant cost of the final good you’re manufacturing or sourcing. There are many ways to adjust your packaging that can help you save on costs without affecting the final product, and possibly not even the perception of your product in the marketplace.

Are you using a metal case? Steel and other metals have increased in cost drastically. If you’re using metal in your packaging, can you switch to plastic? Can you produce a slightly thinner case if you need to continue using metal?

Regarding colors, printing in many colors and with varying textures can add considerable cost. Can you decrease the number of colors or textures in your packaging?

Regarding size, can you make your package smaller? Can you take out some layers of packaging? Can you requiring a smaller number of different materials to be used, thus gaining economies of scale and simplified assembly?

2. Decrease Transport Distance Required for Final Assembly
The price of oil and thus transportation is increasing. With oil now well over $130USD per barrel, look for ways to reduce transportation distances. The most obvious example is to source closer to your final customer. However, even when you need to ship the final product long distances, you may still be able to optimize your supply chain here.

For example, do you manufacture a final product that requires the assembly of components from multiple factories in multiple locations?

If yes, you might consider consolidating your factories within more of a reasonable distance. We’ve seen customers make their final product in Guangdong province but they have a ‘legacy’ factory in Tianjin for one of the components. Each time they want to run of a line of product, they must ship goods from Tianjin to Dongguan by rail or road. Once they relocate this factory to near Dongguan, they will save themselves costs on shipping as well as time.

3. Cut Out the Middleman
Trading companies and 3rd party companies have their place, especially when they act as project managers and quality assurance specialists.

However if your product requires multiple components and you are purchasing some components from trading companies that aren’t adding value, cut them out! Moving further back on the supply chain and working directly with factories will help you to get the lowest cost possible.

4. Push Back on Price Increases
Do not just accept any price increase that a vendor or factory comes back to you with. You need to make sure that the increases they are requesting are legitimate.

For example, if the price is increasing because of a VAT rebate reduction, you should reference the VAT rebate chart to confirm your product is actually effected. You should also try to have the factory prove to you that they actually even paid VAT in the first place, as many factories don’t and are using this issue as a way to increase profits.

With regards to currency fluctuations affecting price increases, try to start having the prices quoted in Chinese Yuan (RMB). Yes, you will still experience fluctuations in price, but these will be market driven as opposed to having to renegotiate prices regularly with the factory.

Additionally, if price changes are because of raw materials cost increases, reference back to global prices and make sure that the increase your factory is quoting you is in line, at least within a reasonable percentage, to the changes in the global market for that commodity.

May 30, 2008 | Filed Under Negotiating & Strategy | 4 Comments

The China Price and why China should buy Wal-Mart

Many know that the “China Price” has been, for so many years and decades, a reason why so many companies have come to China to source products from all over the world. It’s been written so many times that China is the factory to the world. Most people already know this. Most people also know the story of Wal-Mart and China. If you don’t, then do some searches on Google and you will find plenty of information that talks about how Wal-Mart sources a high percentage of their products from China and how, over the years. This along with their operational excellence in their supply chain has helped them to destroy their competition. Wal-Mart is possibly one of the largest driving forces of China being the factory to the world. Also, Wal-Mart is what any large scale supplier in China would wish to have – a connection to the final customer. The greatest amount of profit is secured through this demand chain and it is the final battle for Chinese companies that currently export to the world but have ambitions to go where Wal-Mart is today – being the end retailer to the world and not the low cost supplier. Look below on the reporting done by FRONTLINE in 2004 at PBS examining the close relationship Wal-Mart has with China and how Wal-Mart, as a retailer facing the customer and owning the demand chain, has changed the ownership of power from the supplier to the retailer.

FRONTLINE explores the relationship between U.S. job losses and the American consumer’s insatiable desire for bargains in “Is Wal-Mart Good for America?”. Through interviews with retail executives, product manufacturers, economists, and trade experts, correspondent Hedrick Smith examines the growing controversy over the Wal-Mart way of doing business and asks whether a single retail giant has changed the American economy.

“Wal-Mart’s power and influence are awesome,” Smith says. “By figuring out how to exploit two powerful forces that converged in the 1990s — the rise of information technology and the explosion of the global economy — Wal-Mart has dramatically changed the balance of power in the world of business. Retailers are now more powerful than manufacturers, and they are forcing the decision to move production offshore.”

“Wal-Mart has reversed a hundred-year history that had the retailer dependent on the manufacturer,” explains Nelson Lichtenstein, a professor at the University of California Santa Barbara. “Now the retailer is the center, the power, and the manufacturer becomes the serf, the vassal, the underling who has to do the bidding of the retailer. That’s a new thing.”

Let’s repeat the above one more time – “Now the retailer is the center”. Now to examine some trends and get back to our Wal-Mart perspective in a few minutes. Given the current conditions in the marketplace see our article on 4 reasons why the “China Price” is changing with increases from raw materials to labor and oil reaching all time highs, many are saying that the factory of the world will lose its customers to emerging markets like Vietnam, India, and even back to Mexico for many US companies. The pivotal point is that “customers” are moving and not Chinese companies (albeit many Chinese companies are even diversifying their operations to a variety of Asian and foreign countries).

Losing power to the retailer? Chinese suppliers being just another commodity? China, as a country, being another commodity and being replaced by countries like Vietnam, India, and Mexico? What is China to do? What can they do to not be just another low cost country provider?

This article by David Barboza published in the Global Policy Forum in 2005 relays the changes China has embraced to battle these changes. Take a look below.

“The future goal of the company is to make the name Great Wall known across the world,” said Liu Rengang, a spokesman for the state-controlled Great Wall Computer Group. A spokesman for Ningbo Bird, one of China’s biggest cellphone makers, sounded equally ambitious: “Our future goal is to become one of the top three cellphone manufacturers in the world.” China’s Ministry of Commerce reported this month that even though China’s exports are dominated by consumer products, few famous Chinese brands are involved in the export trade. Most goods are being shipped abroad with foreign brand labels.

To rectify the situation, the ministry called on Chinese companies to start exporting their own “famous brands.” Every region was ordered to produce its own famous brands. “We need to cultivate a group of independent famous brands that have international influence,” the report said. “Each industry needs to have its own famous brand for export.” The thinking behind the effort seems simple: imitate the foreigners.

So let’s add some background and analyze some other important elements in the world and about the business of retail and reach – reaching the customer is not easy to say the very least…

Massive Growth in Spending among Emerging Economies – Opportunity for China and Chinese Suppliers?
Massive growth in consumer spending due to emerging growth in the economies of Brazil, Russia, India, China (BRIC countries). This creates demand for products and services to say the least. There will be so many new companies in all these countries expanding into retail…but do they have the savvy to be leaders? Many of these national retail companies will have local expertise, but even that can be overcome for patient and visionary companies. The key aspects here is that many of these countries and the companies to entrepreneurs will come to China to source and buy products to import into their countries. This will be a rising trend even as the China Price is going up.

Massive Changes in Information Technology – is China keeping up? Can Chinese companies compete?
Massive changes in information technology – people have at their fingertips the power to reach beyond their resources. Using the Internet what can you not do? The Internet has made the consumer immensely powerful and the new generations of consumers are possibly the most incredibly informed group of people ever. This means you just can’t sell at any price in a large scale nor can you just setup a store anywhere and think you can get customers to come to your store because you are new or have great service. People have information and in the near future, this will be instantly available on their phone – they will know that your store is not competitive on prices and that your services were not well regarded by 10 customers just yesterday.

Operations, Logistics, Process Excellence – Do Chinese companies have what it takes compete globally?
Operational Excellence – You can’t hide a company’s lack of operational execution savvy with money or people for too long. Sooner or later you get beat by companies that excel in this capacity. Wal-Mart is known for operational excellence. They are known to execute at a degree of effectiveness and efficiency with a cost basis that makes competitors just wonder how they will ever compete.

Understanding Retail – Does China know how to service the final customer?
Retail Excellence – you need to understand your customer, you need to be able to forecast your demand chain, you need to be able to almost predict the future and shape consumer behavior if not cater to it with utmost efficiency and effectiveness. There is possibly, when compared in sheer scale of operations (Google is probably ahead of Wal-Mart in this capacity if not well ahead), no other company in the world that can even compete with Wal-Mart in terms of its depth and breadth of consumer measurement and intelligence. Wal-Mart is like a government of a highly successful country with some key differences being: Wal-Mart collects profit not tax (what is the difference anyway?), Wal-Mart probably measures their customers more than governments track and monitor their people, and Wal-Mart is seeking to extend services in their country (their store) that allows the consumer to spend every bit of all the money in their wallet or purse at the store if not more.

For those of you not in the business of retailing then we can’t even begin to describe how complicated and how complex and how rapidly changing the game of retail is and how the demand chain is not won by money or sheer strength – absolutely not. Now back to China and the challenge of their globally minded suppliers and corporations involved in selling products to the world. So…who has the size, the sheer scale, the infrastructure (global logistics, regional and national distribution centers, fleets of trucks, global telecommunication and network infrastructure, global work force operating under process driven management, global business intelligence network, global relationships, global financial management infrastructure, etc. etc. etc) to be the highway for China’s aspiring companies (Lenovo is already there, Haier is growing, others still struggling) to reach the final customer and reap the promised profits of opportunity? For now, that’s probably only Wal-Mart.

Let’s examine what FRONTLINE reported in 2004 at PBS:

“Wal-Mart has a very close relationship with China,” says Duke University Professor Gary Gereffi. “China is the largest exporter to the U.S. economy in virtually all consumer goods categories. Wal-Mart and China are a joint venture.”

So imagine…if China bought Wal-Mart then what could it do? What would that mean to sourcing direct from China? What would that mean to every company’s product in the world that isn’t in a Wal-Mart anymore because Wal-Mart is selling only Chinese (ok, ok, maybe some local country products as well)? Imagine the power of owning that demand chain…the power of owning the front door to the customer…

Once again and finally to what David Barboza published in the Global Policy Forum in 2005:

Japanese and South Korean companies like Toyota, Sony and Samsung made the moves from national to global brands quite successfully, but it took years. Analysts say Chinese companies do not have that luxury, because the rapid pace of globalization means that markets are now quickly won and lost.

“Chinese companies don’t have that much choice but to acquire overseas companies,” said Joe Chang, a China specialist at McKinsey. “Very few companies can build organically any more. If they wait 10 to 15 years, they could be dead.”

Being the world’s low-cost factory floor is no longer the country’s singular ambition, analysts say. That is perhaps why China Entrepreneur magazine recently devoted a cover story to the question, “Should China Buy Wal-Mart?”

China Buying Wal-Mart? Why not?

May 27, 2008 | Filed Under Sourcing Trends | 3 Comments

Supplier Diversification and Your Exit Strategy

Diversify your suppliers in China

Having selected a factory and developed your product in China is only the first step in your sourcing process. It is important to diversify your supplier base. Throughout the procurement process, there will be times when unexpected delays can turn into extra months for producing deliverables. The natural process is to accept the reasons for delay and “hope for the best”. When doing business in China, having patience with your supplier is not always the best method for action.

It is important to lay out strategic plans of action with measurable milestones. See your end goal and put the invested emotional quotient aside. In conjunction with these plans, penalties for lack of execution on both sides must be implemented. Enforce these penalties, but also expect to negotiate during the time for payment. During an import venture mentioned below, the supplier had to come to the table with a signed contract entitling me a 65% discount.

While the delays were excessive, you cannot expect the supplier to lose all profit and even material/labor costs. If communication has broken down, take the high road coming to the table with an understanding of the supplier’s perspective, but only to the degree of reasonable doubt on the reasons for the delay. Do not take the reasons for the delays at face value.

Other common schools of action are complaining (many of us do this in the wrong manner) and while this will put new thinking in the minds of your supplier (that you will not accept further future delays), the deed has already been done. Maintaining the right kind of respectful relationship is key to any business endeavor (or even personal relationship) and complaining in the wrong way can damage this fragile, long distance relationship.

The foundation for my understanding of the business principles, included in this article, in China, was derived from a venture into importing private label modular cabinetry. In my case an intermediary was engaged to resolve some of supplier problems. Read in detail my experiences in this area and specific actionable items in Avoid the Middleman and Seek the Intermediary.

My experience in producing cabinetry in China tells me that having an exit strategy is key to making a bad situation transcend the fundamentals of a failed import venture. If you have selected the wrong supplier, the first delay is not the end, but only the beginning.

There are times when the smart business decision is to cut your losses for the time being, regroup and engage your second supplier. The supplier always has the upper hand in your dealings with them. They have your deposit, you need the product and having to switch suppliers midstream would incur delays and costs. This balance of power can be flipped if you are open to turning the tables with diversification.

If the end result is obtaining the product in the required schedule, the second supplier you had lined up may be your lifeline. In the mean time, you can resolve issues with the current factory and complete the order post the newly engaged factory delivers. This scenario works if you will need additional inventory or you can negotiate with the current supplier to reduce order due to your delays and having to engage the other supplier to accomplish the endgame.

May 24, 2008 | Filed Under Negotiating & Strategy | 1 Comment

China 3 minutes of silence at 14:28 (06:28 GMT) for Earthquake victims

To our readers - we will be back to the business of sourcing from China and Asia later this week. Considering the tragedy, we want to share our form of silence for 3 days with no new posting to commemorate the families and individuals who lost too much. Please see our post on how you can help.

Along with the people of China, we hope you can share 3 minutes of silence this Monday the 18th of May at 14:28 (06:28 GMT) in memory and in hope for the people who suffered and passed in this tragedy.

As reported by the Associated Press (link here), China mourns today.

BEICHUAN, China - Flags flew at half-staff, public entertainment was canceled and 1.3 billion people were asked to observe three minutes of silence as China began three days of mourning Monday for the victims of the nation’s massive earthquake.

Officials asked for the horns of cars, trains and ships and air raid sirens to sound as people fell silent at 2:28 p.m. — exactly one week after the quake splintered thousands of buildings and killed an estimated 50,000 people. Chinese news portal sina.com said the government had ordered all visitors to online entertainment and game pages to be redirected to Web sites dedicated to commemorating earthquake victims.

The Olympic torch relay — a potent symbol of national pride in the countdown to August’s much anticipated Beijing games — was also suspended during the mourning period.

The national flag in Tiananmen Square, which is raised in a solemn ceremony every morning at dawn, fluttered at half staff.

To mark the mourning period, the logos of all newspapers were printed in black and the National Grand Theater canceled or postponed all performances. Trade on China’s stock and commodities exchanges will be suspended for three minutes, the Securities Regulatory Commission said on its Web site.

May 18, 2008 | Filed Under Uncategorized | Leave a Comment

Wenchuan EarthQuake in Sichuan China - What you can do to help.

As most are now aware, due to the intense worldwide media coverage, there was a massive earthquake in Wenchuan, which is in the middle of Sichuan Province in China. According to official reports, more than 12,000 people died, and there are many more injured or that have lost property. Even in Shenzhen, we are hearing reports of many families in their hometowns whose house has been damaged or destroyed and entire livelihoods have been lost.

The earthquake was a 7.9 on the Richter scale and tremors were felt across China.

The goal of this article is to give thanks to those who covered the earthquake quickly and efficiently within the blogging arena, as their help to get the word out was most helpful in getting donations to assist with the recovery, which is still ongoing.

It’s our pleasure to point our readers to CNReviews.com who put together a comprehensive list of over 24 ways to donate money to help the earthquake recovery effort.

If you haven’t yet contributed, and are financially able to, please don’t hesitate to help with whatever amount you can. For many of our readers, China may be a far off place, but most likely if you’re reading this site, you’re involved with China on some level. Your contribution is appreciated and needed.

Probably the most comprehensive coverage of the Wenchuan earthquake was by the Shanghaiist. It’s also interesting to read AllRoadsLeadToChina.com’s coverage as they have maps of fault lines in China as well as other unique information.

And last but not least, we found a website called ifgogo.com which contains a personal account of the Wenchuan earthquake unfolding with personal pictures and videos. Do note that some of the pictures may not be appropriate for all viewers, but they do begin to show the magnitude of the crisis.

Thank you for reading and sharing this information. Your help is truly appreciated by these organizations but mostly by those people who will never know your name but the universe does and one day the gift you gave will surely be a positive force in your life. May we pray that all those suffering in China are given expedited help and love.

May 15, 2008 | Filed Under Uncategorized | 5 Comments

Importing over the Internet? Challenges, Opportunities, and Hedging Your Bets!

Is it possible to source products from the Internet without ever stepping foot in China? The answer is yes! I am a proven example of this fact. It may surprise many, but there are reasons why sourcing remotely may be your best bet.

Navigating China and the language is as difficult and vast as the Great Wall. You will need a tour guide or a representative from the factory to take you around. I say tour guide because the factory rep will not take you to the other factories you need to visit (unless you bring a lot of RMB). If you do make the trek to China, you will need to use the Internet to at least make a list of good candidate factories. You can use an intermediary or trading company to locate these companies before your arrival as well.

There is without a doubt no substitute for being in China, do the face to face with the factory and get a good feeling for product quality. This face-to-face is my primary reason for visiting before buying. Shopping on the Internet can have its hazards. For more information on why an intermediary can also be useful, please read the SourceJuice article Beware the Middleman and Seek the Intermediary.

I have successfully sourced and imported, from start to finish, a wide array products with lucratively positive results. It is important to remember that with any business there will be bumps in the road; importing from China is no different. If you fail once, research and then try, try again. The statistics in United States are that out of 10 businesses, only a single one is destined to succeed. For this reason, I recommend importing multiple containers of different product at one time. This increases your likeliness for overall success (like diversifying your portfolio). Of course you’ll need to have the buyers set up!

If you import two containers, one may break even in cost and the other makes. If you had only imported one container and it was the break even one, you might stop importing all together, thinking that there is no profit potential. To maximize your chances for success, read Digging Deeper series for some solid information on extra costs to expect, based on my successes and failures.

Let’s look at some of the challenges that sourcing from the Internet has:

Time zone difference (12 hours or more depending on Daylight Savings in the US)
Zero responses to communications from most factories or trading companies
Outdated and unavailable product models on websites
Lack of product samples available
NO WEBSITES at all!
Poor photography of products
The items you are looking for are available, but their presence on the Internet has possibly not yet made a debut.

The list is endless…….

What can you do to help wade through the challenges?

Signup for the Pro version of Skype, get a long distance calling card and get familiar with dialing +86 phone numbers.
Befriend a Mandarin speaker in the US to use on phone calls. Use all the resources you have at your disposal.
Get an Intermediary or reputable trading company contact
Meet every international trading entrepreneur you can, as experience is the best teacher. Losing money on an import venture is the second best teacher.
Get in the local trading circles of small import shops (they are everywhere and you have absolutely no idea until you stumble upon them). In Atlanta there are shops importing granite, sanitary items, furniture, lighting, doors – come on…. EVERYTHING. Each of these shops usually has company names completely unrelated to their business. I spent a lot of time at these locations trying to bring their inventory back to the Internet, working partnerships, etc. Learning how someone else runs his or her business is essential for your success. The best teachers are the failures. I have seen more full warehouses with no customers/sales than you can even imagine. I have seen huge warehouses with no inventory system or uniform model number scheme.

Here is your short-list of small import shops in the Atlanta area:

Panda Kitchens and Bath: http://www.pandakitchen.com/ : Cabinetry

United Corp Intl: http://www.unitedcorpintl.com : Highend spa/steam rooms, Jacuzzi tubs, lavatories and bath cabinetry (Chinese modern pedestals and classic wood cabinetry)

Homeware Building Supplies: http://homewaresupplies.com/ : a little of everything – cabinetry, copper, glass and granite sink bowls, lighting, hardwood flooring, modern Chinese pedestal sinks.

Stone City, Inc : http://www.stonecityinc.com/ : cabinetry

Don’t get frustrated when talking to owners of above businesses – I am certain now that I am in China that their job is to discourage you from stealing their profits.
The best advice I can give is finding a good customs broker, they are worth their weight in gold. You do not know everything there is to know about logistics and customs regulations, but they do. In addition, they have lots of contacts with people importing a broad range of items – ask them to make some introductions. It gets no better than Encore Forwarding out of Jacksonville, FL. Even if you are not clearing goods at the Jacksonville port they have offices that work in concert on any port you need. Encore also works with a logistics company Triple Eagle for a turnkey import transportation and customs solution for your goods.

May 14, 2008 | Filed Under Sourcing Guides | Leave a Comment

Why decorating a new home in China is the same as importing from China!

If you ever bought a new home in China then you know that most are sold bare - absolutely empty with concrete walls and floors. There is no insulation, no flooring, no paint, no pipes, no appliances, essentially nothing. This is the normal standard in China and there is a huge home decorating and remodeling industry that has been created by the need of homeowners wanting to decorate their homes before moving in because they don’t want to move into an empty shell.

So where it gets interesting is when you spend a considerable amount of time doing your design of how the home should look to what types of materials - here below is just a short list of the things you must consider.

Kitchen - You will have to consider everything from the floor to the cabinets and appliances and even the wiring for the electricity and the sockets in the walls. Vents, counter tops, faucets, pipes, and the list goes on.
Rooms - You will have to consider everything from the floor to the ceilings and walls to where you can plug your computer or lights into. Lighting, decorative fixtures, paint, and the list goes on.
Main Areas - You will have to consider everything from the floor to the ceilings and paint to electrical outlets and insulation to, if you desire, under the floor heating systems.
Outside Areas - You will have to consider everything from what is available (like electrical outlets, lighting) to what is on the ground.
Bathrooms - You will have to consider everything from the floor to the wash bin to the tub or shower and all the materials involved as well as the plumbing to how hot water will get into the bathrooms.
Storage Areas - Just like the above, you will need to consider everything.
Walls to Doors - Putting up extra walls for a storage area to picking out doors for every room to the front door made of steel (in China the main door to the home is considered critical and often times it can be a metal door with another metal cage like protecting door before it).
Wiring and Plumbing - It is even critical to ensure you think about this for the entire house and where it will be put and how it will be insulated and accessed for repair in the future.

Now, think about doing this for the first time and not having anybody other than a friend or a relative help you do all of this - designing the home, identifying the materials, and outlining all the rules and guidelines to ensure the home decorating company gives you the home you wanted in a few months after construction is all complete. Sounds difficult? Yes it is and that is only the beginning. If you really want your home, in China (and possibly many other places in the world), to look like what you designed and have the materials you wanted while being developed the way you outlined in the rules and guidelines with proper care and attention – you have two options.

You have to personally monitor all of this and hope you have enough knowledge (and if you do then that’s great) to know, monitor, and audit the decorating company you hired so as to make sure they are absolutely following the design you gave them, buying and using the materials you requested, and following the rules and guidelines you outlined. Most likely you will not have the time since it is a full time job and most likely you will not have the knowledge since you don’t own such a decorating company. Let’s be honest – can you even begin to imagine what is truly necessary here? If it’s not your full time job then let’s just say the answer is absolutely no.
Hire someone who knows this and can be trusted! In China, trust is an important asset as it is in any other country. Finding a trusted project manager or quality manager to be fully aware of your needs and desires and work each day with the decorating company is critical if you want your home to be what you designed with the materials you picked following the rules and guidelines you outlined. Many Chinese families have found, after a few months or a few years, when problems start showing up in their homes that they should have used such a person or company. The problems span all over the place - flooring starts coming up and out, tiles are breaking apart, pipes are causing condensation and creating molds, kitchen cabinets are breaking or no longer working, paint is cracking, ceiling fixtures are coming apart, and even the power outlets are not working. Many times, the problems are from the decorating company trying to earn extra money by not buying the materials you requested but substituting with something cheaper or far cheaper. Additionally, the problems rise from the decorating companies just trying to finish your home as soon as they can and not following the rules and guidelines you requested – that is why you end up with faulty wiring, bad paint finishes, poor tile and floor work, and a variety of other issues.

So SourceJuice, what does all this have to do with importing from China? Well, if you look above at the two options you may find some exact similarities to sourcing and importing from China. Quality happens when you either put in the time or have someone else do that for you. There are many Chinese companies and suppliers that adhere to giving you the best product for the money you are providing them, but alas there are (like anywhere in the world) far more who just see you or your company as a one time deal – get your order, build it quick (possibly ignoring your material requirements and guidelines or standards) and ship it out to collect the funds as quickly as possible in the fastest amount of time. This is reality and it doesn’t stop just because a company is verified or a trusted supplier or even if it’s someone you have done business with for some time.

Take another look at the SourceJuice article Beware the Middleman and Seek the Intermediary for a real life example where it was a little late to bring in a third party (the trusted partner) and in hindsight the lesson learned was one of investing the time or investing the money to make sure you are not surprised by bad news but rather get what you expect. Even the largest and most sophisticated companies in the world face this lesson – review this post on the Heparin scandal for yet another example. If you followed the news on the Heparin sourcing issue, you will find that it seems to be a matter of substituting ingredients to make a larger profit.

Many of you will say the analogy of the home and importing from China can come from anywhere in the world. That in fact, this happens even in America as well as London to Russia and Brazil. Yes it does, it isn’t just a China challenge, it is your challenge when you invest in a product and find a supplier to generate your orders into shipments. It is your opportunity to work with such a supplier to generate the profits you so desire at the margins that led you to come from all over the world to China. It is your due diligence that will either make you vastly successful or vastly in debt if not wondering how you ever got into the situation you did.

The smart and successful companies and people that import from China know (like the Chinese home buyer who is investing either their time or their money on a trusted partner) that everything needs to be managed and that means everything. Yes there is a cost to managing everything in time and expense, but in the end the time and money you save by not having to deal with crisis situations to substitute materials will far outweigh the time and money you invested!

And in case you’re wondering what the final apartment looks like…

May 11, 2008 | Filed Under Quality Control | 5 Comments

One Man’s Challenge Is Another Man’s Treasure - Home Building Materials, part 3 of 3 and continuing.

Welcome back to SourceJuice and the treasure of knowledge in sourcing for home building materials and products that truly make sourcing from China a golden opportunity for those willing and determined to reap the benefits of going direct to the source. If you haven’t already read the first two parts to this series, go here to #1 and #2.

Now to part 3 as SourceJuice explores the different components of home building materials and products.

Appliances – every house, condominium or apartment has them. There are many pieces to fitting a home (microwaves, vent hoods, stoves) and builders absolutely love to save as much money as they can – they want to pay as little as possible. However, this is an area to stay away from as builders have a period of warranty they must deal with and parts for Chinese appliances are hard to acquire. Even if you get a builder crazy enough (trust me all builders have crazy in them), it will be a hard sell for the final customer - the homeowner who is going to ask why the appliances are not name brands like GE, Whirlpool, Jenn-Air, Sub-Zero, etc. So SourceJuice’s advice, in the US and Canadian markets at least, is to stay away from this area and save yourself time and money for other areas as noted below.

Hardwood Flooring – there is competition in this category from contractors, national wholesalers like Space Flooring and online retailers like flooring.com. Check prices everywhere before you get into this game. This is one of the most expensive items to the builder and one of the better opportunities if done right. This is where private labeling may make sense to reap even larger benefits. Most builders check prices and look for cheap and easy solutions, but just because you are the cheapest does not mean you will get the deal. Be cautious of laminate hardwood flooring as builders will opt instead for cheaper engineered flooring. Also be cautious of hardwood flooring materials with protective sealing materials, when you spill something the liquid is never able to escape, causing mold. Builders are aware of this and most will stay away from these products.

High End Roofing Tiles - this is your million dollars and more opportunity just waiting for new businesses to enter the market. Look for slate tiles from the same companies you purchase granite through in China. Many builders are also looking at synthetic alternatives to save a buck. Without a doubt, this is an area where price is critical and so are choices. Not a bad place to also start your own private label brand and build a long term business.

Custom Doors - builders spend an incredible amount of budget dollars on custom doors. Many of the reasons builders do not buy doors, in general, direct from a distributor is because of the finishing that is required (hinge mounts, door knob holes, etc). When we are talking custom doors, we are talking Georgia Art Glass. This is a very detailed industry with standard sizes, glass types, etc. Know your business before getting into this area but SourceJuice believes this is one area where unique ideas and designs can truly bring you significant opportunities to make money. Don’t just think doors here, think lifestyles, security, glass and wood, metal and wood, sculpted, embedded with granite fixtures, and the list can go on about how unique design and your ideas can create new and highly desired models for people and builders looking to create a unique look for their homes. Another great place to start your own private label products that may start as your brand but soon could be a name brand if done right.

Fireplaces – Great margins, little market saturation, every house needs one (maybe more). Another area looking for innovative products and a great way to think about how your partner companies in China can, with your ideas or theirs and some unique designs to sizes, create a very large business.

Fireplace mantels - look into marble slate, crushed limestone, plaster composite and low end mantels for opportunity and to be unique. Builders buy a lot of mantels from companies like Valencia Accents. You could easily do the same with the right partner in China.

Travertine Tile - If you are in the USA, go Mexico. You can bypass steam ships, railroads and import duties thanks to NAFTA. The only cost you will incur is product and domestic freight across the border to your loading dock (approximately $1,300USD). Need a suppler, try Impameric. This is an expensive item on builders’ budgets, but watch out for Home Depot (they have the price jump on everything) and other large home improvement retailers as they will be tough competition. For other markets in other countries, once again China is your factory and partner unless your country is imposing tariffs.

Lighting & Ceiling Fans - there are a lot of the big companies like Progressive Lighting in the game already manufacturing overseas. What SourceJuice has noticed recently are import companies bringing in light fixtures with no pre-planned pricing schedule. This market is relatively new to the small import shops and they haven’t quite figured out pricing yet. The major retailers (Home Depot, Lowe’s, B&Q, etc.) all have a stock of their own private label products and are making good margins here. There are thousands of ceiling fan and light fixture manufacturers in China and this creates great opportunities for smart importers. Get unique, great looking, upscale product at great prices and you have opportunity. Once again, everyone with enough determination can buy product from China at great prices (even with all the changes in currency, labor, raw materials, etc.) but the key is not just buying and selling but rather giving yourself a competitive position.

SourceJuice is a firm believer that companies succeed by offering value that is not so easily found – that means you either have great prices and decent product, great products at decent prices, or unique products at whatever price you can set with the end buyers. Looking back at this article and all the prior ones in this series and what you will find is that there is opportunity everywhere. So many companies, started by 1 or 2 persons, started from nothing and made fortunes. The companies and people that make fortunes and continue to make fortunes are always the ones that are excellent in one or many ways and the real treasure is in being unique, reliable, fast, and knowing your business.

Sourcing is for the strong, the determined, and those who know that it is not easy but that is why there is opportunity and that is why every treasure takes a map. That map is not easily found but for those of you reading this should already know that you are far more prepared and far more knowledgeable than most of your competition and yes – information is power. Now you know why most of your competitors or even others outside of your business do not want to share their supplier and their buyer information – because that is power, that is knowledge, and that is their supply and demand chain.

Next week we will bring you part 4 in this series. Thanks for reading and see you soon at SourceJuice.

Dylan Blankenship signature
dylan@sourcejuice.com // Dylan Blankenship

May 4, 2008 | Filed Under Sourcing Guides | 1 Comment

Should You Diversify Your Supplier Base?

It takes time to develop a successful relationship with suppliers. For many importers, once this relationship is stable, they are hesitant to keep looking for other factories to produce the same product. There are certainly benefits to working with as few suppliers as possible such as gaining economies of scale, stability in terms of quality assurance and predictability as far as shipping schedules.

However, with the recent inflation in China, partly due to decreases in VAT rebates, many factories are raising costs hand over fist. When a factory decides to raise your costs, you have 3 options:

1. Eat it - You need the product. You have no other options.
2. Try to Negotiate - Perhaps you can knock the price down a bit; however, you will still agree to a price increase and you have no real way of knowing whether the price increase is reasonable.
3. You’re Prepared with Alternative Factories - You’ve got secondary suppliers that could take up part of (or all of) future orders. You can play your suppliers off of each other, dangling carrots as necessary, and make sure that the price increases are reasonable.

Jason Busch at Spend Matters, adds an additional insight on why you should diversify your suppliers in his article Split of Business: The Best Sourcing Justification for Supplier Diversity?

By dangling the carrot of additional business out to the secondary suppliers, a buying organization can get them to invest more in the relationship than they otherwise would. Out of this might even come joint innovations or even new product ideas.

And at the end of the day, aren’t we all looking for better, more interesting products (at cheaper prices)?

May 1, 2008 | Filed Under Negotiating & Strategy | 1 Comment