TMBA 235: 2 China Factory Sourcing Strategies (and Business Updates)

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TMBA 235: 2 China Factory Sourcing Strategies (and Business Updates) post image

 

This week, Bossman is back on the scene, and we are going over a host of specific updates about our businesses. In particular, we really get into what kinds of challenges we’ve faced manufacturing our own product, how we’ve been handling our relationships with our Chinese suppliers, some ways that you can save money with manufacturing and a whole lot more.

Listen to this week’s show and learn:

  • Some of the lessons we’ve learned working with our Chinese suppliers.
  • How we’ve managed to handle 100% year-to-year growth and the challenges that have come with that.
  • Some things we’ve learned trying to get our new Software-as-a-Service product off the ground.
  • How taking greater responsibility, setting higher goals, and building a team can lead to more freedom.

People on this episode:

Mentioned in the episode:

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Thanks for listening to our show! We’ll be back next Thursday morning 8AM EST.

Cheers,

Dan & Ian

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Published on 03.13.14
  • Anon

    Your story with the Chinese manufacturer is a common one. I work in manufacturing, and we have done to a customer what the Chinese manufacturer did to you. Our lead times changed from 4 weeks to 12 weeks but it was gradual. We prioritized another customer over them because the other customer had larger volume, paid better, and was easier to work with. Also, in the past, the original customer pulled all of their volume for 3 months and left us hanging with a large inventory. We used to be growing together, but then the relationship changed. They use someone else now, and I think it is better for both of us.

    We totally understand though when people have two suppliers. It’s risk management. We don’t want to have something going on here impact their business, if it came to that.

    I have a feeling you are going to need to move on. The relationship has changed. And you should be able to use two suppliers.

  • http://www.chinalifefiles.com/ Nick

    I think the Chinese manufacturers not telling you what the problem is is a classic problem Westerners encounter in China, and not only manufacturers, but also many people and in many life and work situations in China.

    In my experience living and working there I encountered lots of situations like this at a manufacturing company I used to work at, as well as schools with teachers and students alike. This is related to losing face. Most people do not want to admit mistakes (even though these things were almost never held against them).

  • http://MakeWP.com/ Thomas Howard

    Are the sales calls taking place by traditional phone? If so, what are you guys using to record sales calls?

  • James

    Great episode. I manufacture my own line of sporting goods in China too and am running into the same issues you mention here. I know that if I place larger order with my main factory, they would prioritize my order more. However, I’m always afraid to place larger $ orders because we have no formal agreements or contracts.

    Instead of placing larger orders, I’ve tried to balance out the risk by having my second factory (who I’ve also been working with for 1.5 years) start manufacturing some of the items that my main factory manufactures. After listening to your episode, I want to avoid damaging either relationship. Especially since my main factory was started by a guy who left the second factory, and the factories are just down the road from each other.

    Aside from lead time and cost, how do you guys deal with the risk of working with these Chinese manufacturers?

    Thanks!

  • http://www.tropicalmba.com/ Dan

    thanks for your comment it’s good to get your perspective.. yeah that makes sense to us as well, it’s sort of the beginning of the end and that’s not such a bad thing…

  • http://www.tropicalmba.com/ Dan

    hey James great to hear from listeners in the same boat… we have a sourcing agent who is in charge of QC ostensibly… but TBH high touch relationships are the way we get quality… by over-communicating and hyper specing out through sample and first production. even with that we aren’t immune to having to do the occasional state-side re-touch

    Also no surprise to hear that mr. second factory set up right down the street! :) Chinese business folks are TOUGH TOUGH TOUGH

    I’ll ask the bossman about other stuff we might currently have in place to manage risk…

  • http://www.tropicalmba.com/ Dan

    That’s a good point… it’s still very difficult for us to understand the subtleties of Chinese business culture despite having been working with suppliers for most of the last decade!!! Thanks for giving the show a listen Nick!

  • http://www.TropicalMBA.com/ Ian

    James, when you say formal agreements what do you mean? If you are afraid to post a big PO because they might run away with your money that’s a little different than what we are usually worried about which is quality. If our factory makes a large order and something is wrong quality wise and it’s hard to fix/ not caught before it leaves then we are on the hook! If you are worried about them running off with your money you can do a few things: 1) write a formal purchase order 2) have them sign it 3) only wire funds to a business account, never an individual 4) hire a third party that speaks Chinese and can confirm the details of your agreement.

    As you heard in our case you have to be careful when jockeying between two factories, especially if they are related. Sometimes the competition can be good for you, other times not so much. Important to figure out where your main factory’s motivations lie. Do they care if you are manufacturing at 2 locations? Are you a big enough part of their business? If you are relatively small to them they might not care. Good luck!

  • http://www.TropicalMBA.com/ Ian

    CallRail

  • http://www.TropicalMBA.com/ Ian

    Agreed Nick, losing face is a real problem. In all negotiations we’ve found it’s always a good idea to leave an out. Nobody likes to be cornered and especially in Chinese business culture.

  • James

    Ian, thanks for your insights! I am more worried about posting a big PO where they can run away with my money. Even you go through the 4 steps with your manufacturer, can’t they still just run? I’m wondering how much legal protection the formal PO actually gives you, especially if you have to fight it in a Chinese court of law.

    To pay for my orders, I PayPal their business email addresses. A friend who does boatloads of manufacturing in China recommended doing this over Western Union or wiring money through banks. Is there a downside to using PayPal?

    Also, when you say “figure out where your main factory’s motivations lie”, do you mean that I should figure out how I rank against all their other clients?

    Thanks!

  • James

    Hey Dan, thanks for getting back too me! Indeed, the Chinese can just be ruthless in business. How did you go about finding a good sourcing agent? Alibaba? And I’d love to hear what the bossman thinks, unless bossman is Ian, who already replied. Thanks again!

  • http://www.LimitlessMindset.com/ Jonathan Roseland

    Speaking of telephone sales… I encourage anyone making sales calls to create a cocktail of Norepinefrine and Serotonin in the minds of your prospects. The sensation of simultaneously anticipating reward but feeling the tension of losing it. In the book Pitch Anything he goes deep on this… Checkout my review of the book (features me BADLY in need of haircut) http://www.youtube.com/watch?v=OkskH6c_SPE

  • http://www.tropicalmba.com/ Dan

    interesting… thanks for the link Jonathan

  • http://www.tropicalmba.com/ Dan

    bossman = Ian :)

    You can find sourcing agents on Alibaba… there’s no easy way it’s a matter of pounding the pavement, going there (if possible), and working with people / suppliers over the course of time.

  • Joshua Justice

    Why don’t you hire someone on the ground in China? I live in Shenzhen, and I keep hearing stories like this and wondering if I should open up an office and hire a local to do this.

  • http://www.estrategistas.com/ Paulo Ribeiro

    I loved this episode, Dan. I had such a good time listening to it, which I think it’s just reflex of you guys having fun recording it.

    Really loved the transparency, it’s something that I’ll bring with me when I launch my podcast.

    Cheers

  • http://www.tropicalmba.com/ Dan

    thanks for that Paulo appreciate the kind words! best of luck with the launch :)

  • http://www.chinalifefiles.com/ Nick

    I like your idea of always leaving a way out, Ian. In my interactions with suppliers (and people in general), I’ve found that just being nice and considerate no matter what goes a long way. The cool thing about China is, there is always a way to get things done, and they can make things happen fast!

  • http://www.chinalifefiles.com/ Nick

    I love your show, Dan and have been listening to it for a few months. Keep up the great work, I listen to the podcasts almost every day at work. It is pretty crazy how, like you said, you’ve worked with Chinese suppliers for a long time but there are still subtle things which are hard to understand. At the same time I think a lot of Chinese business people have the same troubles we do in doing business in their own country, they’re just more used to it.

  • http://www.themarketingguy.net The Marketing Guy

    First time coming to your blog but This story was really interesting and I enjoyed it. I learnt a lot from this podcast. Keep it up guys, your amazing!

  • http://www.tropicalmba.com/ Dan Andrews

    Really appreciate that thanks! I’d recommend changing your Disqus username to your real name! Many people might delete comments from “Marketing Guy”

  • http://entrepreneurbeheard.com Matt Haynes

    Balla! Great first world problem for a successful lifestyle entrepreneur to have, ha! I love it gents, you have the best head aches. Keep hustling, put this into the memory banks for recall at later more poignant time and chalk it up as an expirement

  • Kyle Barraclough

    Hey Dan, I do a podcast on business and culture. My first 2 episodes are about China and give a glimpse of the layers and complexities of what is happening behind the scenes. Things that the Westerner does not understand and would likely never be told by the Chinese partners. My take away from my guests is that to understand business there, you have to understand the society and culture. Staying on the level of business will only get you so far. In episode one, an example is given about the Western company thinking their getting screwed on price, but the reality was the Chinese factory was just meeting the demands of the community and not profiting from price increases. If you’re interested the show is here: http://businessandculturecast.com

  • Andy

    Love the tactics in this episode. U guys rule.

  • http://www.tropicalmba.com/ Dan Andrews

    thanks Andy appreciate that !

  • http://www.tropicalmba.com/ Dan Andrews

    Cheers Matt thanks for listening!

  • Yufa Li

    Hi Dan & Ian – I really enjoyed my first podcast! I am very
    curious. How did you find the right agent to hire? I heard a lot of my HR friends
    telling me they are having a hard time to find the right candidate for a job in
    China. Thank you!

  • http://www.tropicalmba.com/ Dan Andrews

    hey Yufa it’s been easier for us b/c we pay a commission on performance so we don’t have to worry about getting our value out of a salaried employee… they’ll almost inevitably be working for multiple people anyway!

  • Yufa Li

    Thanks, Dan! This might be the best approach. Please be aware though there might be a hidden commission between sourcing agent and manufacturer. During this process, are there any other problems that frustrate you?

  • http://www.tropicalmba.com/ Dan Andrews

    yeah absolutely! there’s virtually impossible to know what’s what except to talk with multiple suppliers and sourcing agents. i think i could probably generate a decently long list!!!

  • Yufa Li

    Thanks, Dan! The reason why I want to hear what frustrates you in the process is I am in the process of starting my online business. After hearing many stories on ‘Entrepreneur On Fire’, ‘Mixergy’ and ‘Tropical MBA’, I know I need to find out what my targeted market wants first. I would love to hear your insights! I want to choose a business idea that I can combine my experience as an Executive Assistant and my Mandarin skills.

  • http://www.tropicalmba.com/ Dan Andrews

    start by looking at what other types of companies/services exist in the space you are interested in and see what they are doing well and what they are doing not so well. looking at guys like me is more confusing, instead look at the services/companies we are paying for stuff and see what you can learn from them.

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