Renaud answers four exciting questions from our podcast’s listeners. We cover new product development, if and how to start purchasing and importing electronics, supplier bankruptcy, and tips for controlling product quality and reliability.
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1. New product development for a product with a GSM module. How to integrate the module (if at all)?
This listener has an early prototype of their product that works with a GSM module. They want to manufacture in China and they want the GSM module to be integrated into the product itself.
First, does the GSM module actually need to be integrated? You need to consider that the buyer may already have their own, so it may be that by integrating a GSM module you make the product unnecessarily expensive. For a simple V1.0 of your product that you’re testing the market with it may serve you to keep them separate, as it’s there to be a learning tool, getting feedback, and seeing if the product is feasible as a product that can sell (because it actually can make some sales). The learnings can be taken into a V2.0 which is improved and features different features, one of which could be an integrated GSM module.
If you must integrate the GSM module, be sure to select one that already exists and is pre-certified as this can just be slotted into the product when you’re ready to manufacture and you won’t need to do a lot of separate development and certification work (with their associated costs).
Regarding finding the right manufacturer in China, if you find an ODM or OEM that has experience in your kind of product, in integrating GSM modules, can source the necessary components, and can put everything together and ship it quickly there are some drawbacks. These manufacturers can sometimes take some ownership of your product and supply chain information (as they helped source and develop it so they feel entitled to do so, especially if you haven’t signed a very clear manufacturing agreement with them that outlines that you alone own the product IP) and display your product in their showroom as an option for other customers to purchase. This is more common for hot products that are getting a lot of market traction and being made and sold in higher volumes.
If you want to keep more control over the project identify your key suppliers, obtain appropriate components and make a new prototype that includes the GSM module, and find and work with a contract manufacturer who only works on tasks they’re paid for and doesn’t retain your deliverables (BOM, product designs, etc). They can make a final prototype before the tooling is made so they become familiar with the product and how it is made, then the design can be locked and tooling fabricated, and you move on to certification and mass production. (01:22)
2. How to buy and sell electronics like laptops, smartphones, and accessories on a budget?
The listener wonders how to start buying and selling consumer electronics like phones and laptops with a low budget. First, trying to compete with the Chinese sellers in this market with undifferentiated products is basically a no-win situation. It’s better at the start to target one niche that you have access to with a product that has been altered even slightly to cater for it. Order volumes are an issue here if your budget is low. A thousand pieces are nothing to the better Chinese manufacturers, and they probably won’t be receptive to making changes to the product or maybe even selling to you.
Suppliers on Alibaba are not known for good quality and you will have no control over the supply chain or what the product is made of (this could have compliance and quality repercussions). Since they’re 3rd or 4th-tier manufacturers, your risks of poor quality products or even being cheated by being supplied products that are not as ordered are far more likely so this is a high-risk approach.
If developing your own new highly-differentiated laptop, tablet, or smartphone it’s not really possible to enter that particular market unless you have a high budget (and millions of dollars may not be unrealistic here).
Accessories may be a more appropriate choice for the importer who is just starting out on a low budget as these products are easy to find and less likely to suffer from serious quality and reliability failures so your risks are lower. Start with simple off-the-shelf accessories which you may choose to white-label with your brand. The barrier to entry in this market is far lower, especially if your budget is tight. (11:34)
3. How to know if my manufacturer is going to go bankrupt soon?
The economy in China is suffering the same as in other areas and this can mean that the supplier you rely on for manufacturing your products might go bust. But how can you assess this risk?
Doing due diligence on the supplier remotely will examine their documentation and give you a solid overview of the company’s recent finances allowing you to see if there are any red flags which might suggest that the business could be in trouble now or is at risk. For example, you might see increasing debt, borrowing, and other signals that all may not be well.
Visiting the supplier fairly regularly, perhaps twice a year at least, is invaluable as you can see the situation right now in comparison to the snapshot of the past that due diligence work provides. You can compare changes: Do they appear less busy? Have they downsized their operations (perhaps renting out floors or areas of the building)? Are there fewer staff than before? Aren’t they working with key customers any longer? There is a direct relationship between companies that visit their suppliers regularly for face-to-face meetings and a successful relationship.
If you see some warning signs cultivating a backup supplier as soon as possible is useful. Also, do not send too much money as an advance payment as this can be an incentive to pack up and run with the money. The same goes for sending payments before Chinese new year…that’s a common error, as this is the most likely time for factory owners to shut down the business and disappear. Pulling out your molds and storing them off-site with a third party between productions is a good way to reduce the risks of losing the molds if the supplier closes.
If a supplier does close down be wary of visiting as some foreign customers have been taken hostage by angry employees until they’ve agreed to pay some money. Not common, but there are cases of this happening. (20:11)
4. The products I receive keep breaking, how to control quality?
Products that break down (maybe they heat up, emit smoke, fail to activate, etc) after being sold are often accused of being poor quality and the manufacturer is blamed. But if these occur on a decent percentage of products that are in the field it’s more likely to be a reliability problem which stems back to product design. Perhaps components were selected which can’t handle the real use cases, for example, in which cases they overheat, materials that aren’t strong enough were used, etc. When these products come off the line their quality may actually be perfect, but their design doesn’t allow them to fulfill the users’ needs.
The product needs to undergo reliability testing in a testing lab where the product is put under stresses in simulated conditions with accelerated life tests, etc. You’ll find the most common failure modes and these will influence your design and components and the fixes you need to make. Then subject the newly fixed product to a battery of reliability testing that covers common and unusual use cases and pushes its limits, including use cases where the product is used in an incorrect, yet feasible, way by users. A reliability test plan where your users’ needs and how they use the product are considered is a helpful focus at this point. (31:16)
P.S. If you are visiting China, activate digital wallets!
If you want to visit your suppliers in China be sure to link your bank card to Alipay or WeChat wallet to pay by scanning QR codes. It’s very hard to pay in cash in China now and you’ll have a far easier time of it if you don’t try to use cash, as cashless payments are used for everything. Even if stores and taxis accept cash, they often don’t have any change, so you either have to overpay or you can’t buy. Don’t forget to link your cards to the apps in your home country before travelling as the apps will want to link to your domestic phone number which you may not be using in China. (38:23)
Related content…
- Alipay and WeChat wallet for foreign users
- How Reliability Testing Is Critical To Obtaining Great Mass-Produced Products
- Sofeast Example Quality Assurance Plan (for an electronic product)
- Click here to listen 👉 DIY Sourcing from China Series
- How To Switch To A New Chinese Manufacturer And/Or Develop A Backup Supplier (Free eBook)