Partnering with a Chinese factory: a sweet dream?

Supplier ManagementMost new buyers coming to China want just one thing: to find one or two good manufacturers that they count on, and partnering with them.

They think “if I were a manufacturer, I would try to find a few stable customers and make their lives easy, and everybody would win”. Unfortunately, they do not understand their suppliers’ point of view.

First: why the need for partnering with a factory?

The first contact with a new supplier often gives buyers a good feeling. They place orders, and then the problems begin: misunderstandings and poor quality, delays, price increases, and all sorts of cat-and-mouse games. (Note: I am referring to the majority of cases, not the few situations where all is fine).

Managing relationships with Chinese suppliers can be a delicate balancing act:

  • When a buyer is seen as too tough, factories don’t want his orders any more, and make it clear by increasing prices and/or by providing a poor follow up.
  • When a buyer makes efforts to accommodate production constraints, the supplier understands it as a weakness and thinks “they are making concessions, so they really need these products and we don’t need to make extra efforts”.

Importers try to find a solution. Many end up proposing a deal that comes like this:

We propose to develop a partnership with you. We like you and we are sure you can satisfy our needs over the long run, so we will keep buying from you. Are you interested?

[Subtitles: (1) we hope you'll see us as a valuable customer and you will treat us accordingly; (2) if we get better pricing and reliability, we'll win market share and you will end up benefiting from it]

To this, the supplier responds:

Sure, partnering together for the long term is a good idea. Thanks.

What does a Chinese supplier understand by “partnering”?

Are they happy to see a foreign buyer committing to buying regularly from them? Sure.

Do they believe it? Probably not. Many buyers promise huge volumes–in the future–but fail to deliver. Why? Simply because they exaggerate to get a better deal, or because they switch to other (cheaper) suppliers.

So, is a Chinese factory likely to provide anything of value in return? Not likely. Buyers have to walk their talk for some time before anything really changes.

Buyers from the US or Europe often talk about “win-win” and “long-term relationships”. What Chinese suppliers think is: “if I give you low prices and priority in production this season, I lose and you win; that’s all I can see”. It all comes back to their short-term view of business.

A couple of real examples

First example: a lack of credibility on the part of the buyer.

A French importer with whom I worked closely had been buying from China for about ten years. He had developed a purchasing system that allowed him to be really tough on his suppliers: it was okay for him to cancel a few shipments every season, because he could switch his customers’ orders to very similar items in stock.

This importer was always negotiating prices, trying to guess what the real costs were and how to drive the supplier’s margin down to the minimum level. He was spreading his orders among about 15 suppliers, to avoid relying too much on any one of them. Then, two years ago, he decided to be a “partner” with a few stable suppliers. The deal was: “we need lower prices, is it possible if we give you more orders?

The suppliers thought “oh, here you come with yet another tactic to kill my profit”. It was totally ineffective.

Second example: a lack of commitment from the factory.

A new importer who is launching his brand starts production in China. He finds a Chinese factory manager who has lived abroad for some time, and feels that he can trust him. He makes it clear that he keeps placing all his orders with this one factory. He even asks them to provide materials (against payment) to help his designer, and help him make lots of samples.

But, to the factory, this was a pretty small customer. After the first two orders, and as the QC pressure was reduced, the factory did not reserve any production capacity for this importer. They looked for a factory and outsourced all the products there, without adequate QC supervision. The result was disastrous.

And what about the following order, also given to this factory? The buyer requested in-house production. Prices for the new styles were 30% above what other suppliers quoted. After tough negotiation, prices went down a bit and the order was issued. Production is not subcontracted, but the buyer is not given any red carpet treatment. My conclusion: trust should come little by little, in the light of past achievements. Not before the first order!

So, how to push a supplier to be more reliable over the long run?

Proposing a partnership, in itself, is essentially useless. But a number of appropriate behaviors can be followed. Here are a few guidelines:

  • Accompany the factory at the beginning of the relationship, to explain them clearly what is acceptable.
  • Keep monitoring production quality, make sure to get written and signed records, and do not lower your standards for any reason (if possible).
  • Dump regularly the worst factories: those that can’t (or won’t) be reliable enough, and those that are growing too fast.
  • Give regular business to the best factories and walk your talk, as mentioned above. Make sure you are not seen as a bad customer.
  • Tolerate that the best factories get a reasonable premium on their prices: you will make it back easily on lower costs (better quality, less delays, faster responses, etc. all reduce your costs and help you please your customers).
  • Don’t switch suppliers for a few pennies, but keep them in competition with at least another factory to avoid unreasonable quotations.
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Comments

  1. says

    Another way to create a partnership is to keep an open communication channel with the supplier and to share information that the supplier might not know in terms of quality management, specification, test or production method, honest feedback, market trends, …

    It is my experience that most good suppliers are interested in such information.

    But in general, it is always important to evaluate our attractiveness to the supplier as a buyer (as well as the reasons for this attractiveness and whether this is sustainable) before entering a long terms/partner building relationship with a Chinese supplier.

    Etienne

  2. Derek says

    Thanks for interesting posting up there. As a chinese speaker, I have been a buyer for many years to deal with Asian vendors, especially with Chinese factories. Partnership you mentioned is working literally very well . In reality and practice, it goes to a different direction sometimes. Being artistic outweighs be strategic in partnering with Chinese factories. Without X in your sleeve, you will get a lot of headache during sourcing and purchasig in China, which means you always have a contingent plan to back up for your procuring failure at any time even though your partnership with a vendor is running great. Remeber, the truthful nature of a capital is making profit and maximizing value in the fastest way. Please study chinese history, culture and investigate how Chinese people were educated since childhood, then you will understand what I am saying here.

  3. Renaud Anjoran says

    Hi Derek, I agree with you. If you have a good alternative, and if your Chinese suppliers know it, it will keep them in line. The moment you are in a position of weakness and they know it, you are in trouble.
    You are right to point to Chinese history. It definitely has an impact here.

  4. says

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  5. says

    Well, as being German & textile manufacturer in China myself since 12 years. I find this blog quiet interesting.
    And all those issues are well-known and true for me as standing on the other side.
    Still, I am missing always one basic thinking issue, where Westerns always fail with their expectations.
    It’s they forget where most Chinese people come from, what is their education status and don’t think in western terms here! You can’t!!! Most of my workers come from the countryside, some don’t know what is a mobile phone!! And you expect that person to understand western quality???