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Very few importers make an effort to know the exact financial standing of their Chinese suppliers. China is viewed as a fundamentally opaque country, where "nobody knows who the real boss is anyway". For example, meeting a representative of a given company, and then sending P/Os and payments in the name of a different company, is quite frequent. I am not saying it is a mistake. It is perfectly fine for small purchases, especially if quality is confirmed before payment. But it is NOT advised … [Read more...]

These days I am exhibiting on a trade show (China Sourcing Fair in Hong Kong). Every time I attend a fair to find new clients, I am amazed by the number of buyers who say “Oh, so you visit factories all over China… You must know some good factories… Can you give me a list?” I can understand them. They see salespeople (who can say whatever they want) and samples (which might come from many different factories). There is no way of making sure what production will look like, whether there … [Read more...]

Every year, I guess thousands of companies decide to start importing from China. Some of them already exist, and others are founded specifically for this activity. But overall, most of these companies know very little about China. They know it can be risky. They heard of all the struggles over product quality. They were told business is conducted differently. So what do they do? They try to work with somebody who knows all the tricks. They hire Chinese purchasers in their country, or they … [Read more...]

Factory audits, like product inspections, need to be performed in an objective manner. A buyer that pays for audits of two factories should be able to compare the findings and use them to pick a supplier. It means auditors should work with the same basic checklist for all their evaluations, and make a few adjustments in function of production processes or client requirements. For audits of labor conditions, the checklist is usually based on the SA8000 standard. For audits of a quality … [Read more...]

Small importers tend to have the feeling that buying from a large factory is more expensive but more reassuring. There is some truth regarding the higher prices, but risks are not necessarily lower. Buyers should be aware of the different dynamics at play here. What do I call a large private factory in China? I have three things in mind: At least 2,000 workers (and sometimes many, many more). The target market: most of the production is sent to large buyers in the US and/or in … [Read more...]

The Financial Times published an interesting article ("An accident shows how China treats consumers") that describes the view of Chinese state-owned enterprises (SOEs) regarding the export of unsafe products. They represent a large chunk of China's economy, and many have been exporting for decades. The article tells the story of an SOE whose products (firewords) nearly killed a US citizen. When sued in an American court, its representatives didn't even deny the facts, but tried to show that … [Read more...]

I had an interesting conversation with a Chinese friend who works for local district’s government (in Shenzhen city). He explained to me how "the Chinese legal system does too little for society". No recourse against factories closing suddenly One of his examples was about factory owners who disappear with the cash, and leave millions of RMB of unpaid invoices and wages behind them. Some factory bosses are actually not the legal representative of their company—one of their employees is—so … [Read more...]

In Hot, Flat and Crowded, I read that the exact cost of oil delivered by air-borne tanker to the US military stations in Irak is... $42 per gallon. Here are the elements to add up: Commodity price of oil + cost of delivery + cost of protection along the way + cost of casualties from transportation. The total is the fully-burdened cost (or total cost of ownership). This calculation convinced the army to work on improving energy efficiency (e.g. improving thermal insulation of air-conditioned … [Read more...]

Some large retailers purchase their goods directly from Asian manufacturers, who in turn buy the components and process them. That's about as "direct" as it can get. It allows buyers to avoid the margins of all kinds of middlemen. According to this view, very large retailers would buy everything directly in Asia, right? Actually, the trend among American big-box retailers seems to be just the opposite. They buy more and more from intermediaries who go through all the trouble of Asian … [Read more...]

Twenty-five years ago, the companies that imported from Asia were mostly large structures. Some have set up local offices to conduct quality control. Others have secured the quality of their imports by working with large 3rd party QC companies. Together, buyers and QC firms have organized the supply chain to fit their needs: Most of the inspections take place at the end of production, just before shipment. These large buyers can afford to put pressure on their suppliers. If an inspection … [Read more...]