Thursday, June 6, 2013

Brief Intro of Our Services within China

Following is an exchange of emails between me a potential partner in crime.

I thought about our earlier communication in regard to the Volvo Fulfillment & Mailing you quoted for Zetweka last year.  You said that Beaconstar is able to do a lot of different products through partner companies in China and Indonesia.  Can you please let me have some information regarding the possibilities? 

My reply:

As you know, we’ve been working in China for about 10 years.  I have set-up a native Chinese company there; this is what differentiate us from everybody else.  With a local company set-up, we are capable of doing a whole lot more than trying to remote control everything from outside of China.

During with the years we spent helping our U.S. buyers source in China, we’ve established a strong network of logistics inside of China.  As you can imagine, lots of components to be shipped around the country for assembly or delivery.

About four years ago, we were approached by two existing customers to help them do distribution of supplies and mass direct mailing within China.  This is on behalf of their end clients who have business within China.  The distribution is for an international hotel chain, and the direct mail campaign is for an international cosmetic company.  Unfortunately, I can’t disclose the actual brands or who these customers are due to the NDA we’d signed.

From that point on, and referral after referral, domestic China distribution become one of our on-going businesses.  We would source and/or manufacture the items needed within China, and then take care of all the logistics.  As a matter of fact, I believe this is exactly how you and I hooked up.

We are no good for Indonesia; that’s about as foreign to me as it is to you.  However, our core competency is within the greater China region.  We have three regional offices throughout China and have been routinely servicing international and U.S. customers to fulfill the needs of the growing domestic Chinese market.

In late 2012, due to emerging demands, we’ve started another aspect of our service – consulting.  We are now not only helping foreign companies to do business in China, we actually and physically help them to:

-          Set-up legal entity (whichever format they desire) in China.
-          Human resource recruitment and management.
-          Accounting management.
-          Sourcing and manufacturing.
-          Marketing and advertising.
-          Production distribution, warehousing, logistics.
-          General management.
-          Sales training and supervision.
-          Government relations (important).
-          I.T. support and management.

Depending on the customer’s needs, we can help in whole or in part, or even just let go and not get involved unless asked.

By the end of this year, we’ll be launching another service for our international customers that will help them to bring their products into China mainstream retail channels (i.e. supermarkets, convenience stores, shopping malls, etc) with or without having a presence in China.

I hope this gives you a glimpse of what other services we offer our customers.  In addition to just plain sourcing, thanks to our established connections and networks, we are capable of doing a whole lot more.

What exactly do you have in mind?

Wednesday, June 5, 2013

Overseas Sourcing & International Shipping

A customer recently asked why we are marking up on shipping related charges.  This is at least the second episode with the same customer that resisted on sending the order in due to shipping.  The previous epsidoe can be found here.

In the field of printing, especially when it pertains to flexible packaging, it took me many years to acquire the necessary knowledge and pay for the mistakes to gain the experience.  To date, I've been in the printing industry for over 20 years.  I've started doing overseas sourcing in China since about year 2000, and like printing, I have to take the time and money to learn about international trading and shipping.  That's now about 13 years under my belt.

I never make an effort to hide that we are technically a brokerage company.  Although we are not an average broker who's really just a middle man.  I have companies set up in the greater China region to do sourcing, quality control, warehousing, and export.  So, I'd like to think we are more of a management company.  No matter how it's called, at the end of the day, I do not personally and physically engage in manufacturing of anything tangible.  The only thing that make money for me is my service.  In other words, my knowledge, experience, and connections that make an order competitively priced while always moving forward for my buyers.  That's it, nothing more.  You buy me, and everything that makes who I am.

I do not understand how you are willing to pay for the cost of management of manufacturing your products while you do not want to pay for me to manage the logistics.  International trading isn't exactly like shipping UPS Ground in the U.S.  There is a wide variety of things that can go wrong, especially to more exotic destinations all over the world.  And within China, there are so many games, tricks, and hoops that you have to go through in order to meet the projected delivery date.  One little thing that goes wrong may mean delay of days or weeks.  I am sad to say that I've experienced delays of two months due to improper logistics selection.  That experience costed me my best customer back then.  It would never happen again as I do not have that many customer to lose.  But the point is that even with such a high degree of confidence and experience in handling international logistics, we still get screwed every now and then.

Moreover, the physical activities involved in logistics is comparable to the resources we spend on managing the manufacturing.  A lot of customers think that shipping internationally is something that can be done online, like UPS.  But the truth of the matter is far from it.  As stated previously, there are many more components involved in logistics than manufacturing.  One single incident will just compound our work more and more.  So, please don't mistaken it for a push-button transaction.  There are more people to call, more documents to send around, in international logistics.  Managing manufacturing is relatively easier compared to this. 

The common misperception about international logistics is caused by the number of freight forwarders.  To be a forwarder, all one needs is a computer and phone; it is a very low-cost operation.  Hence, the high number of people who may be offering their services.  However, based on my experience, 90% of them are not worth your time.  Most of them basically piggy-back on bigger forwarders that much bigger volume.  Problem with these smaller forwarders is simple - when something happens, they become invisible.  Invisible meaning that they have no way to rectify the situation, and more often than not, they do not have the necessary information for you in a reasonable amount of time.  Believe it or not, in the past 12 months, we've dumped two of the top 10 ranked freight forwarders in the western region of U.S.  These two companies are huge; they do billions of dollars in business annually.  However, their ability to get shipment through promptly and correctly eventually caused them to lose our business.  We have very high criterion and expectation on the freight forwarders that we work with.

And as I tell all of my customers: Overseas Sourcing is half manufacturing and half international trading.  This is not a difficult concept to grasp.  However, many of my ex-customers and/or prospects may have elected to buy directly from China.  With that, they'll just gain the manufacturing half as most Chinese factories knows nothing (or not enough) about international trading.  I've heard many horror stories about manufacturing in China; I've also heard the equal amount of horror stories about not handling the shipping correctly.  In the end, I actually have had many U.S. competitors who came to me for an order because they can't overcome certain logistics-related difficulties on their own.

Lastly, unlike manufacturing, international shipping is a very tricky game when it comes to cost.  Whatever is quoted now doesn't really equal to what we'll end-up paying when the order is ready to ship, or when the order is finally delivered.  Nowadays, things are relatively calm.  But a couple of years ago, the price of fuel were so unstable we lost a lot of money on handling shipping for our customers.  Shipping prices is not only connected with cost of fuel exclusively.  The actual oceanliners also have a lot of politics that they play.  Every now and then, they'd play games like cutting down on the availability of ships (reduce supply) so they can increase the cost of shipping to make more money.  Real costs in international shipping are neither predictable nor stable.

So, I hope you can see why I am charging for my service on international shipping as I am doing the same on the manufacturing.  With manufacturing, you get something tangible, but with shipping, it's all just intangibles.  But the reality is that one cannot live without the other.  We are spoiled here in the U.S. because shipping is so easy and common that we take it for granted.  I can assure you, once your shipment arrives on U.S. soil and clears customs, the shipment will also be able to enjoy the same accommodations.  However, it does take work to get things from China to wherever you want them to be.

To win you over, I am willing to lower my pricing down to the bare minimum.  However, I must be honest with you that at that level, I still have some mark-up.  That margin of mark-up is not going to make me rich.  Far from it.  I need it to pay for people's time and salary.  I wouldn't even call it a profit, more like to cover cost other than the direct shipping related bills.

I want to establish our working relationship more like partners instead of vendors.  But to get to that level, it'll take both of us a lot of time to get to know each others.  It is not in my personality to try to spike a job because I see opportunity to make lots of money.  I tend to take the more consistent route - I always keep a very low mark-up and hope that the business will continue over time.  I'd much make a whole lot less but have things to work on every month.  There will be jobs that I'm not competitive on.  If I have to lose money, I can't do the job.  You'd do the same. 

I know you feel there may have been some mistakes made on the present order.  If so, I am truly sorry.  While I cannot guarantee a 100% error-free workflow going forth, you know I'll work very hard to have that as my goal.  There will be times when mistakes or issues will still come up, but I'll always be there to take care of our mistakes.

I'd love to win you over by writing long love stories like this.  At least, this is how my wife fell for me.  But at some point in time, I guess only real actions can prove if we can become good partners.  As I've always tell my other customers:  "If I can't save you money and hassle, I don't deserve your business."  I think this will be very applicable to our situation as well.  If my pricing is solid and competitive on the current quote, I think I, we, deserve the continuous opportunity to work together.  The more interactions, the more opportunity to learn about you.  And the better chances of a more fruitful and smoother working relationship.

Sunday, June 2, 2013

Overseas Sourcing Psychosis

A sales staff recently asked doing a repeat order on a big presentation book that we have done last year.  Customer needs another one for his upcoming book release.  While this is not something out of ordinary, this big presentation book did cause quite a bit of stir last year when we did it.

The book is huge, 140 pages at a finished size of 40 x 30 inches.  It is meant to be sitting on a pedestal for display during some type of press release event.  It also has to be a functional book as it should allow people to flip through the pages and read the contents.

Open size: 80 x 30 inches, 140 inside pages.  This is the "Big Book."

Needless to say, this big book cannot be manufactured through traditional offset.  An inkjet printer was used to produce this book and tediously hand-bound.  Prior to the actual manufacturing, which was relatively expensive, we'd produced a few white dummy books for the customer to test and approve.

Being a one-of-a-kind product, there were certain issues that had to be resolved resulting in duplicate prototypes been made.  Shipping something this big through international express delivery didn't help either.  Minor damages resulted from shipping had also made the road to completion very difficult.

A year later, customer came back for a reorder.  However, this time, he wants us to "guarantee" everything - from shipping to manufacturing.  While this is not totally unreasonable, and quite understandable, having the previously experience, this is not something I was willing to commit to.  The sales staff in charge, as any overly-zealous and eager sales person, was a staunch supporter to meet customer demand of a blanket guarantee.  On the other hand, I personally feel the sales staff did not do his job in educating the customer and setting the right expectation.  My decision was that I'd rather walk away from a potentially good job.

This brings up the main topic: Overseas Sourcing Psychosis.  How is the topic related to the "Big Book?"  It's simple, really.  It's so simple that I hate to point this out...

The primary objective of a buyer souring overseas is one and only: price.  There is no other reason that can come close to justifying overseas sourcing.  With that in mind, one has also to assume that all overseas buyers have already done their homework.  That is, they already know how much it'll cost them domestically, and because there is a big enough cost difference, the buyers elect to go overseas to source the item.

In the case of the "Big Book," customer must have already known how much it'll cost to produce this book domestically and have chosen to go through us to go overseas because of the price saving.  However, being a smart buyer, he now wants us to unconditionally guarantee both the product and shipping.  The shipping part is that if any damage was caused by shipping, we'd pay to reproduce the book and express it without having to get carrier's compensation.

The sales staff is being very naive in this case.  If this product is being produced domestically, the seller would not be able to guarantee the shipping.  That will fall upon the shipping carrier.  Once the shipping carrier clears the case and makes compensation, the seller would be able to make reproductions.  In order to bring the job in, the sales staff is going to all length to try to meet customer demand.  Looks like some basic re-training is needed.

My condition on shipping begins with a requirement for wooden crate.  Without this being agreed to, I would not consider guaranteeing anything.  While the wooden crate will surely protect the Big Book, it'll add weight and volume to the shipping cost, not to mention the cost of making a quality wooden crate.  Naturally, customer decline to pay this and insist on paying the lowest possible price on shipping.

If the product itself was manufactured domestically and something goes wrong, the seller can easily print out the damaged pages and drive over to fix the book.  When it's done overseas, something just as simple cannot be easily done.  The Chinese factory will not be able to drive over and fix the book.  More than likely, the book either has to replaced or flown back to get repaired (this option is not viable as it'll cost more to do so).  This means that the product has to be done in 100% perfect condition that'll stand up to normal wear and tear without having any issue.

To do a book this big once a year and asking for 100% perfection that'll last through time is unreasonable.  That is, unless the manufacturer is specialized in doing books this book and have tons of experience.  In this case, one can safely assume that the cost will be high as the buyer will also be paying for the expertise and experience that will yield a better product.  Having bypass the notion of paying more to get more, an overseas buyer will not see the value of this whether the book is manufactured domestically or overseas.  In his mind, he is so locked into the lowest price possible, nothing else matters.  That is, until something goes wrong...

And with overseas sourcing, something most likely always go wrong...

I should not venture to say that Americans are "spoiled."  We are not.  We pay for the better quality of life with our hard-earned money.  Everything is better in the U.S.  There is really no comparison, but we do really pay dearly for this.  We are so used to enjoying high level quality of life that the concept of "quality" eventually disappears; we take it for granted.  When overseas sourcing comes into the picture, we often forget about the normal standard of quality that we are used to and kind of assume that we'll get something similar in return.  At a much lower price, of course!

I call this symptom: Overseas Sourcing Psychosis.

From Wikipedia: 
Psychosis refers to an abnormal condition of the mind, and is a generic psychiatric term for a mental state often described as involving a "loss of contact with reality". People suffering from psychosis are described as psychotic.  The term "psychosis" is very broad and can mean anything from relatively normal aberrant experiences through to the complex and catatonic expressions of schizophrenia and bipolar type 1 disorder.

The world is a big place, but the law of nature is the same anywhere you go.  There is still gravity and pollution in China as well.  The concept of "getting what you pay for" works just the same on both sides of the Pacific.

China is still a developing country.  It has been famous, or infamous, for being the world's factory for over a decade.  Due to its low wealth and high concentration of people, China started out substituting a lot of how we make things by machines with rural farmers.  Yet the tradition continues till this day.  However, over the course of its growth, China has slowly being modernizing.  Yes, more and more automation, more and more machines.  This is due to rising labor cost and the pursue of better quality.  With manual labor, the quality will always be inconsistent.  One worker's handiwork will be different from the next worker.  With machines, you take out the inconsistency issue.  And over the long haul, with rising labor costs, machines and automation will easily become a cheaper option.  Yes, Chinese businesses are learning just that and is currently going through a shortened industrial revolution.

Most people think China's quality sits at the bottom of the pool.  While that may not be totally wrong, it may be becoming out of touch with reality.  Over the last decade, cost of manufacturing in China has risen so much, it finds itself not competitive with other developing countries such as India, Vietnam, or Thailand.  On the flip side, the quality of products have improved as China modernizes, both in its manufacturing facility and management.  Nowadays, you'll easily find products made in the aforementioned other countries having the same inferior quality as what we remembered China used to make 10 years ago.

For example, it is now nearly impossible to find a pair of Nike shoes made in China.  I look for those.  As those that are still made in China costs more but lasts longer.  Shoes that are made in other developing countries are the lower-end and lower-cost items that tend to last much shorter and would break in very unexpected ways.

So, back to the point about quality.  While China has grown leaps and bounds on quality compared to what it used to do, it still has a long way to catch up to what we are used to here.  As overseas buyers, on certain products, we cannot expect to receive the same quality but paying 40% less.  You'll be lucky to get "similar" qualities.  Having done overseas sourcing for over a decade, I know.

I qualify if something is a good fit for overseas by two methods:

   1). Timeline.  Is there enough time to make the product and ship it?
   2). Quality.  Does the product require a high degree of consistent quality?

For mission-critical products, I always advise my own customers to stay state-side.  Meaning that if customer is extremely picky about a product, and there is a definitely timeline that the product has to fit, it is not a good fit for overseas sourcing.  Under such circumstances, I would not stick my neck out so I can disappoint my customers.  On the other hand, if the product is meant to be more or less disposable and not something you'd put on a pedestal, and of course, if time allows, overseas sourcing is definitely going to save you money.

Just because a buyer sees the potential in cost-saving by going overseas does not necessarily and automatically equate the project to yield the same expected quality.  As buyers, we tend to forget the quality of item we need in the face of lower costs.

I have a feeling I'll lose the Big Book business.  But in fact, I'd rather lose the business than lose money on the job.  There is no way I can guarantee both the product and shipping.  We always take care of our customers.  Meaning that if something goes wrong, we always go to great length to make amends.  And yes, that even means if we have to dig into our own pockets and pay for issues that weren't caused by us.  But knowing walking into a situation where a written unconditional guarantee on everything is just not a wise business decision.  This buyer may get the assurance he wants from overseas factories, but he won't be able to get this from us.  Anything promised by these factories are worthless; there is no legal recourse available if they don't meet whatever contract you can throw at them.  I know this because I have many cases pending to take these factories to the Chinese courts.  Please keep in mind that I'm doing this with my native China company; it'll be next to impossible to do this as a foreign company.  But then, this is another blog for another time.

If you are one of those overseas buyers who may be suffering from this type of psychosis, take comfort in knowing the fact that there is no chronic state for this mental fallacy.  Over the course of your overseas sourcing experience, you will eventually learn to accept that quality often has to take a back seat.  You will learn to accept.  And you will learn how to justify and re-quantify why certain products that you source overseas can have a bit less quality than what you used to enjoy.  This disease is self-curing.  You are all set.

I, personally, cannot become the fool who'll promise you big savings and the best quality under the sun.  We are an American company that abides under the same law as our buyers; unlike Chinese factories who are out of reach, reputation, honor, and law suits are all very important to us.