Chinese Robot Manufacturing Industry: Don’t Expect Too Much

Best Quality & Sourcing Articles

Here are some good articles that I found over the past few months.

‘Made in China': the smart revolution blueprint set to bring Beijing into the digital age

After Germany’s “Industry 4.0″ strategy, China unveiled an equivalent document entitled “Made in China 2025″.

“The ambition is to turn China into a “strong” manufacturing nation within a decade, with the priority on digitalisation and modernisation of 10 sectors, including aerospace, railways, new-energy vehicles and new materials.” But are they really focusing on the right things in their development strategy?

Men of steel

Beijing wishes to see leading robot manufacturers appear in China. However, “of the 56,000 industrial robots sold in [China] during 2014, only 16,000 came from local suppliers”, all high-end automation systems are foreign, and Chinese equipment has a poor reputation when it comes to reliability.

Will Your Hardware Startup Make Money?

Based on a fictional new product launch, the author gives us a great breakdown of the typical costs involved in a “hardware startup”. It also illustrates that, in consumer electronics, volume is key to reaching profitability.

Factories Aren’t Dying To Take Your Order And Other Hardware Startup Follies

An investor reminds hardware startup entrepreneurs of a few realities regarding China manufacturing: many factories are not interested in spending months of development for a new and untested company; MOQs are often too high; it is best to audit the factory carefully and then to have a representative close by.

Free Resource: 40 Random Tips for Emailing China Suppliers

Most Chinese people prefer to use QQ or Wechat (instant messaging platforms) rather than email. They are just not very good at using email in a professional manner. To avoid long back-and-forth discussions, or worse misunderstandings, I highly recommend this free e-book from Jacob Yount.

Not Necessarily Signs of a Bad Supplier 

Jacob Yount lists 6 signs that are clearly unprofessional in North America or in Western Europe, yet that are common among good and bad Chinese suppliers alike. (By the way, I wrote before on this same topic here.)

Managing the Production Process in China – Part I and Part II

Fredrik Gronkvist wrote a good overview of the whole purchasing process with a Chinese supplier, for small oversea buyers.

China Contracts: Make Them Enforceable Or Don’t Bother

Contrary to what most businesspeople think, a carefully drafted contract can be enforced in China against a Chinese company. Steve Dickinson explains how to increase your chances of getting a fair trial.

NPD Process for SMEs Buying from China [free e-book]

New-product-development-for-sme-in-chinaOver the past few months, our engineering team helped me write a 19-article series on the NPD (New Product Development) process. We dived deep into the details.

However, the general feedback has been along the lines of “this is for big companies” and “we don’t have time to go through all these steps”.

So we thought of what is really necessary for an SME, based on our experiences working with small and midsize buyers.

The result is an e-book that outlines and describes a roadmap which is flexible and relatively light, while still addressing the most common causes of new product launch failures. You can read it by clicking on the link below.

NPD Process for SME Buying in China v6bis

Table of contents:

  • Objective and Introduction
  • Research – Product Idea
  • Sales Forecast
  • Test – Design Activities
  • Testing
  • List Changes
  • Production – Supplier Qualification (in China)
  • Supplier Audits (in China)
  • Product Manufacture (in China)
  • Business Case & Budgets
  • Product Launch
  • SME NPD Process Diagram
  • Conclusions
  • Resources

Overall view of the process:

Simple NPD process for SMEs

Feedback from readers is most welcome!

THE Guide on China Company Investigation

Last year, Jeremy Gordon from China Business Services mentioned he was collecting information for a book. He asked me a few questions about factory audits.

Risky_business_in_ChinaWell, the book came out recently and is called Risky Business in China. It is a great guide on what and how to investigate a Chinese company.

It outlines and explains in great details the long list of pitfalls Western companies tend to overlook while doing business with Chinese companies, as well as the type of verifications/investigations that are appropriate.

It is written for Western companies that want to work with a Chinese company, whether buying that company, forming a joint venture with them, purchasing products from them, or using them as a distributor.

Jeremy describes the ways some Chinese companies hide reality. Here are just a few examples:

  • High expenses through a travel agency (which are “used like ATMs to distribute illegal payments”) might indicate that customers are bribed.
  • Chinese companies often lend money to each other while a bank acts as middleman, so this is not easy to spot.
  • An accounting audit that started from the company’s server uncovered 12 sets of books (!) by checking deleted and overwritten files.

I wrote a few key takeaways from the book:

  • Do not rely only on documents provided by the company. “Documentation provided by people who want to defraud is often fraudulent”.
  • Audit firms often tick boxes in a checklist, rather than understanding the context and looking at reality on the ground. Starting from tangible elements is always better.
  • Meeting/interviewing people, and then triangulating information from several people (ideally suppliers, employees, and customers), will yield much better insights than a document review.
  • The longer your supply chain, the more difficult it will be to keep an eye on what happens.
  • An ERP system will force some level of transparency in a Chinese company. (This is one of the first steps we advise when advising a company on how to prevent corruption of their buyers).
  • The target of an investigation might be offended by the idea of being investigated. But a variety of covert due diligence tools are available.
  • Try to get information on the reputation of key officers in the company. “Tigers do not change their stripes”.

I highly recommend this book! It is easy to read and not excessively long.

Food safety standards: ISO 22001, HACCP, GMP

Quality Control TipsAs one might expect, the food industry takes safety issues (i.e. not making consumers sick) very seriously. The main standards don’t focus on “quality” (i.e. making sure the taste is good) but on “safety”.

It seems like not a month goes by without a serious food scandal in China, so I thought it would be interesting to look at that industry.

For a food factory, there are 3 steps in a logical progress, from GMP to HACCP and finally to ISO 22001. I am going to introduce each one briefly in this article.

1. Good Manufacturing Practices

It is relatively easy to set up a GMP system. It mainly includes these three elements:

  • Personal hygiene
  • Facility hygiene
  • Premise hygiene

Most food factories apply GMPs, but seldom in a systematic way (with monitoring, followup on corrective actions, etc.). In China this is applied in very inconsistent ways.

(Note: for warehousing operations, GMP and ISO 9001 are usually sufficient. There is no real need for HACCP and ISO 2001, even though it is possible and easy since there are no critical control points.)

2 . Hazard analysis and critical control points

An HACCP program requires an analysis of all potential issues for each product. This might be easy for a factory that only produces a few products, all of which follow roughly the same process. But it is hard for companies such as supermarkets that deal with many product categories.

For each process, the company has to:

  • List the process steps
  • For each process step, list the potential physical, chemical, and biological hazards
  • Decide which ones are critical (those that have a high likelihood x severity score)
  • The non-critical hazards can simply be controlled by GMP (which are called “PRP” for “pre-requisite program” in ISO 22001)
  • The critical hazards have to be controlled in a measurable manner, with a target and tolerance(s). For example, keeping raw pork meat at –18 degrees can just be a GMP point, while the only critical point in the workflow is the last step —  cooking with a core temperature of 90 degrees (minimum 80 degrees) — because it is the one that kills the bacteria.

3. ISO 22001

This standard includes GMP, HACCP, along with some other requirements that are mostly similar to ISO 9001 (management review, internal audits…)

This is why most food factories that have implemented a HACCP system are also ISO 22001 certified.

What Does the RMB Devaluation Mean for Importers?

Over the past few days, China’s central bank has let the RMB slide by a few percentage points.

RMB_rate Is it big news? For importers who make a slim margin on what they purchase from China, obviously it is.

In the long run, this trend was expected, as I wrote here. Financial markets were anticipating this move — and now they are anticipating even stronger depreciation.

On the positive side, Chinese suppliers will have strong pressure to reduce their USD prices if this trend continues.

However, if your supplier purchases a high amount of imported goods, this devaluation will mean more expensive components, and overall their prices won’t decrease. Add to this the numerous excuses Chinese suppliers are ready to give you (wages are up. we underestimated the complexity of your production, our supplier insists on a price increase, etc.), and many importers will be given no rebate.

How low can the RMB get? If the export numbers don’t get better, if Beijing thinks it impacts the country’s growth and employment in a significant way, AND if the inflationary pressure remains moderate, a return to 6.8 or even 7.0 RMB per USD wouldn’t surprise me. The truth is, nobody knows.

We are actually back to the situation of Mid-2012.

RMB_rate_3

But, seen on a longer time period, this move isn’t really significant (yet?).

RMB_rate_2

How to take full advantage of this trend? You can get quotes in RMB and settle what you purchase in RMB, as I explained here. A number of large companies are already doing this, and there is no reason midsize importers can’t do this.