Just to share a little bit of my thoughts regarding the
state of e-cig supply chain in China; this is after a couple of months of
research and experience. As you are very
aware, most of the e-cig factories are stationed in the Shenzhen area. This is a very typical “Chinese”
pattern. For some reason, Chinese
factories (and sellers) like to be around friendly competitors and reside in a
conclave. This is a cultural thing. You’ll find many different industries with
the very same behavior. There is a huge
benefit of this type of social behavior: your competitors (counterparts) can
readily become your partners when there’s a big order. And most of them will need this type of
symbiosis in order to get big orders.
While this works out great for these suppliers/sellers, it doesn’t bode
too well for the buyer. It means
whatever trade secrets you have will be wide open; everybody in that tight-knit
community will know about you. What you
buy, how much you buy, how picky you are, and type of turn-around you need;
basically, everything there is to know.
The worst down-side is that when they see your volume steadily increase,
some part of the community will start to make knock-offs. And as you know, they are not going to use
the top quality components that you use.
In the end, you lose market-share to the knock offs, and they decrease
your profit margin once they start to surface. Worst of all, the inferior components used in
the knock-offs will damage your brand trust and identity. Such event is very difficult to circumvent as
your designated supplier does not have control over this. Since he may be buying components from all the
different members in the community, everybody in the community knows how much
you are buying.
And this is what’s going to set us apart as well. As we’re familiar with this unique Chinese
ways of doing things, we have already established a very different type of
supply chain from the get-go about a decade ago. Our supply chain management is more western
and much less community-based. Whatever
we are doing, our suppliers will only know a very restricted portion – enough for
him to do his job. And we never buy from
a community. When we find a supplier may
possibly belong to a community, we usually dump that supplier. This way, our buyer’s trade secret remains
safer.
Personally speaking, I think the e-cig supplier market in
China is headed to an implosion.
Something big will happen soon where a lot of the suppliers will
disappear and then a new crop of suppliers will emerge. The disappearing and re-appearing may mean a
lot of buyers will be affected. Some
will lose money since they can’t locate their original suppliers while some
will have disruption of product and many need to start brand new with new
suppliers. The root of this problem may
just be the very close-knit community they have built. And… I
think both China and U.S. will start to regulate this e-cig sooner rather than
later. That will have a major impact on
the supply-side of things. Right now,
the international express thing is dominant.
Once the loop-hole is closed up, then this trade will be much more
normalized and stablized. This is my
personal feeling, we’ll just have to wait and see what happens.
