The Rise of the Dragon

If you don’t already know, Alibaba.com literally brought the possibility of doing business in China to your fingertips.  When you log onto that site and type in a product you are looking to manufacture, you can get dozens of various suppliers who are willing and eager to help you source and manufacture your product.

Those who are unfamiliar with the workings of Alibaba and general business practices in China need to understand a few things about them.  When I say Alibaba, I am also referring to their competitors, such as madeinChina.com, etc.

1. Anybody can sign up. This means some average Joe (Zhou) off the street who has a computer with an internet connection can sign up for an account and call themselves a supplier.  I have heard of stories of someone locating a “factory” or “supplier” online, sending them money to make their product, and never hearing from this “factory” or “supplier” again.  I liken these schemes to what you hear coming out of Africa.  Those Nigerian SPAM emails you get just about everyday asking for a small upfront fee in order to get a much larger return.

2. Huge markups. Because the most frequent visitors to these sites are foreign companies, and the Chinese know it; therefore, they markup the price of your products a lot.  They figure you are not going to know the difference, since you are coming from the US or some other Western country.  And Westerners have money.

3. Distributor galore. Going along with #2 is that these sites are usually inundated by distributors who say they are the factory.  Since everyone needs to make money, these distributors will obviously markup their prices.  The markups are usually based upon which country you are from.

I recently was working with a client who was trying to transfer raw materials over to us, so we could begin producing products for them.  However, the “factory” they were working for was trying to make sure they got their kickback for production before they would send the raw materials to us.  They kept asking for different kinds of information so they could write up the invoice in order to get their kickback.  We even called this “factory” employee to find out what was taking so long and why they did not seem to know how to transfer this raw material to us.  After a detailed conversation with my client about their experience with this “factory” and speaking with the “factory” employee, we finally figured out that this “factory” employee was in fact not even a part of the factory where the raw materials were manufactured and stored.  They were a distributor that contracted with the factory, but all along they were telling my client that they were the factory.

Alibaba and all the other sites out there are good resources to find a factory or supplier of your products.  However, I would never consider doing business with anyone I found on those sites unless I went to China to personally visit the “factory”.  I would also make sure a thorough audit is completed on the factory to ensure they can do what they claim they can do.  There are a lot of strategies the Chinese can use to make you think they are legitimate, even if you do visit them.  Being familiar with these different strategies and enlisting the help of experienced people who you trust will help you avoid being scammed.

Last Thursday, we sponsored a China Importing Workshop along with Salt Lake Community College and Cargo Link. We each had the opportunity to speak about a specific topic related to importing from China. Other speakers included Kirton & McConkie Law Firm and Zions Bank.

During my presentation on working with Chinese factories, attendees brought up a great point as to the difficulties of doing business in China. I feel I did not answer the question fully and want to make an official statement here.

The statement was that I emphasized the importance of relationships so much during the seminar. I also said that Mattel had decades of experience working with a particular manufacturer, but still had the quality issues. Obviously, relationships can be broken very easily regardless of the time you spend on developing them.

When doing business with China, I cannot emphasize enough the importance of building relationships. Everyone must take the time to build the right relationships with their Chinese partners or else it will very difficult to succeed in China. You cannot build a proper relationship in China after only one or two visits. The Chinese expect to take their time in getting to know you before they trust you enough to get down to real business. Mattel did this correctly.

Even after building a business with your Chinese partner, you should never give up the entire manufacturing piece to them. Periodic and random checks are absolutely essential to keep them honest. Communicate honestly, but not with confrontation. Keep the peace, but still let them know of the problems. As I mentioned in the seminar of the role of face, it is important to make sure you save face for your partner.

Too often Westerners, are so caught up in the how the Chinese are doing it that they forget the why they are in China. Is it really important that the Chinese don’t speak directly? Or, that they deal in a hierarchical society? Just because they do things differently does not mean it’s wrong. Instead of focusing so much time on the fact they do things differently, instead focus on doing things their way to get the results you want. Besides, isn’t that the reason you are there anyway, is to get results?

Don’t give in to everything, however. As I mentioned in the seminar, if you give in to everything they are going to take, take, and take. Instead, give in to the unimportant, but hold firm to those things that you value. For example, take time to build relationships, pass business cards with two hands, etc., but don’t give in to your personal and corporate values, such as trust, honesty, etc.

As for gift giving… don’t do it! I made the mistake when I first did it and it cost me a good deal of money. Hold firm to what you believe in.