Using a China Agent vs Going Direct
As companies weigh the pros and cons of working directly with a factory vs. dealing through an agent for their China sourcing needs there are many points to consider.
Here are my top ten:
1. The scale or dollar volume purchased annually. (I published an article in M&A Magazine which argued it requires $40-$50MM in throughput for any ROI on a direct sourcing office.)
2. The number of varying categories and SKUs being sourced.
3. The complexity of products being sourced. Cotton socks are a lot less difficult to make and package than electromechanical items with sophisticated firmware and specialized components.
4. Experience levels, competence and proficiency with the language of the country with whom they're dealing.
5. The sheer number of factories the buyers/agents have worked with including access to the owners or very least factory bosses and relationships with those individuals; the length of time and history with those factories and dollars of business placed with them; the ability to get production bumped forward in the schedule; the ability to receive favorable payment terms which impacts cash flow of any business.
6. Competency with provincial government regulations and requirements. (How would a New Yorker fare in an Alabama factory or vice versa?)
7. Ability to travel to/from factory within one day for urgent matters, product/packaging changes, and production oversight.
8. Quality Control-Generally considered the most critical. The standard process for measuring QC and the depth of practices such as random and in production sampling, testing equipment and facilities, reports, photos, and now video.
9. Experience with logistics, freight terms and all export documentation and activities.
10. Does the agent or factory (for direct) share your sense of urgency and same philosophies and principals? Are they vested in the outcome and long term success of the business?
Selling Ice to Eskimos and Chopsticks to the Chinese
We’ve all heard the term “he could sell ice to Eskimos” to describe the consummate salesman who is able to convince someone to buy something for which they either have little need or likely have ample supply on hand. Or perhaps we’ve heard “he could sell them the shoes off their feet.” In either case the idea is that for those with the gift of persuasion, it is possible to convince someone to purchase something based less on need and more on charisma and charm. There may soon be a new term in our vernacular that could describe one U.S. company, Georgia Chopsticks—“They can sell chopsticks to the Chinese.”
In a town ironically named Americus, Georgia two hours south of Atlanta, that is precisely what Jae Lee has set out to do, producing 2 million Chopsticks each day destined for Japan, Korea and yes, even China. In May of this year, the Americus-Sumter County Payroll Development Authority (PDA) made a formal announcement that Georgia Chopsticks, LLC would open a production facility in Americus that employs 150 people. According to Lee, China with its 1.3 billion population lacks ample natural resources to support demand for chopsticks and on Tuesday, May 31 a formal ribbon cutting ceremony was held to mark the opening of their plant.
According to the Atlanta Journal Constitution Lee who started his chopsticks business in Cochran last November, sent a couple of samples overseas, and within a few months needed to expand. Said Lee, "I knew there was a need and I thought I could make a profit." Imagine that.
"We tend to think that the Asians take care of that pretty well," said David Garriga of the Americus-Sumter Payroll Development Authority, the economic agency that owns the plant that Lee rents in the city's old industrial park. “For Americus, the chopsticks factory represents a flashback to its days as a manufacturing center,” Garriga said. But as many companies shifted work overseas, many shops shut down.
So why aren’t more companies strategizing to include China in their plans? In an October 6, 2010 Bloomberg Press report it was estimated that China market was valued at $150 billion in potential goods and services or a top ten global opportunity for U.S. companies. “U.S. companies have experienced tremendous commercial success in China's market and the prospects for future growth are significant,” says Erin Ennis, vice president of the U.S.-China Business Council.
China has become the U.S. third largest customer for things like Greentech, machinery, luxury items and even wine. China's expanding consumer market clearly has an appetite for Western brands. Thanks to the gateway of information available through the internet, television and other media there is almost built-in demand for products from the West. As long as companies are focused on things like quality and safety the market is stronger now than in the history of our trade relationship.
“The Chinese appetite for fashion has become voracious,” says Farooq Kathwari , chairman, chief executive officer, and president of Ethan Allen Interiors. “The observation that ‘we first dress ourselves, then we dress our homes” applies equally in China. For years, French, British, Japanese, and American clothing designers have taken China by storm. It was a natural evolution that consumers so immersed in couture and inspired by the biggest names in fashion would turn next to fashion for the home. The demand is there and growing.”
Kathwari should know. He’s been in China since the 1970’s when he began buying arts and crafts there. Today they are marketing Ethan Allen —a quintessentially American brand—in 53 locations in major cities across China. They ship 60 percent of what they sell there from their well-established U.S. manufacturing base and in turn buy Chinese products to be marketed in Ethan Allen Design Centers in North America.
The U.S. exports about $100 billion annually to China in goods and services, supporting about half a million American jobs. According to the White House new deals in the works with China will support up to 235,000 new jobs in the U.S. In addition to major players such as General Electric, Honeywell and Navistar, there are opportunities for companies of all sizes to exploit increased demand by the growing Chinese middle class.
For now, the man who would sell chopsticks to the Chinese quietly goes about his business of working toward a goal of producing 10 million chopsticks per day. As of June he’d received 450 job applications. For many of those Americans out of work in the little Georgia town, the Chinese market for their products could soon mean the good fortunes in their cookies may very well come true.
