Lessons Learned From 7 Years of China Factory Visits
It’s been almost two hours now. There is a hot-ass cup of green tea sitting on the conference table in front of me. A large free-standing air conditioner unit is blowing warm air. Everybody (except me) is barking at each other in Chinese. We’ve been looking at the same mechanical sketches for an hour. The English translations offered by our sourcing agent are remarkably succinct. 5 minutes of aggressive back and forth in Chinese is time and time again reduced to statements like: “This product very difficult to assemble.”
Ya don’t say?
30 or so minutes later, while still on the point of assembly, and idea comes to me: I don’t need to do this ever again.
We’ve got better people in our company that ought to be here instead. Here’s a decent business maxim: stop taking on aspects of projects in which you provide no unique value. And sitting here in this steamy room, I feel secure that I am providing no unique value.
I’m here today in the largest manufacturing base in the world for two reasons. First, to show face and to say “thanks for making our stuff guys.” Second, we’re on a mission to get a better pricing and payment terms for some of our most important product lines. In China, these are not short conversations.
Consider this a passing of the torch, whether you are on my team (hey guys!), an aspiring e-commerce or product entrepreneur– I wish you many quality factory visits. Here’s hoping it’s not all hot-ass green tea and boring conversations.
You’ll know you are doing something right when you end up in a decidedly scandalous Karaoke party in an equally surprising luxury hotel. When you find yourself at the Ritz, don’t act surprised– appreciate it— because hanging out in China is mostly about hot-ass green tea.
So without a tinge of nostalgia, here’s some stuff I learned over the the last 7 years visiting what feels like and endless string of factories in China and Vietnam.
This guy welds products that we sell on our e-commerce stores.
* * *
Walk the floor. No factory visit is complete without the factory walk through. You've risked your life to get here, now take the time to survey the floor. Feel free to take photos of anything. Nobody cares. Pick up stuff. Poke it. Stage cool video shots of products being stamped out to post on your website. Make sure to keep an eye out for competitors products stashed in the corners. If you see something interesting or fishy, ask.
Hang out and lounge around. It takes time to get good information. It's okay to just hang for a bit. Drink another cup of that piping hot green tea. Take another spin around the factory floor. You are basically going to hang there until lunch hour, or happy hour...
Give them a million reasons to lower the price, even if they don't make sense. "We need to get another 20% off of the price because of a new competitor that just entered the market." Let them think about that one for a bit. 15 minutes later say, you'll need to get that 20% off so "you can go back to the United States." Does that even make sense? No it doesn't. Don't worry, your role is to generate reasons. Anything. If they are going to back off their quoted price, they'll need reasons. Absurd reasons work just as well as real ones and often better, especially if the real reasons are insulting. Another supplier offered us the 20 point price reduction. Leave that one for email later. It won't play well in person.
Have a factory facing brand. I know it looks cool for you to have your logo posted all over your packaging, but these guys aren't dummies. They will look at your websites and try to reverse engineer strategic pricing for you. Prevent this by creating a unique China-facing brand, cards, and contact information. Also consider blocking China IP addresses from your e-commerce stores. This is easy to get around, but it's probably worth doing anyway.
Understand that China is extraordinarily cash-focused. Factory owners don't care about your big plans, ideas, or market opportunities. They've met you before. Everyone has big plans. They care about cash, period. If you want to get terms, discounts, or preferred pricing, you need to put options on the table that involve cash. If your top end order quantity would, in theory, be 300 units, negotiate hard for 50 or 100 units, then offer a 300 unit order (later by email) if they can can deliver on your final price request or if they can offer special terms.
The way to get your price is to know what it is. Conversations about 'getting their best price' won't get you anywhere. The strategy that works best for us during the product development state is to simply let them know the price we need.
If you hang around long enough with the engineering team (this process can take hours), they can generally present you with alterative manufacturing options that can help reduce the price. The engineers you are talking to are very rarely thinking about business strategy-- they are thinking about manufacturing processes.
As an example, just 1 hour ago we learned that the color of the paint of a new product was killing our price point. The color of the paint!? This issue was neither something that the supplier or us thought to bring up proactively to lower the price. The supplier thought we needed white, and from our perspective, why is white paint a problem?
It took us slogging it out for a few hours, being clear about the price we needed to get an order done, and listening to the particular issues their engineers were facing to learn this information. If you are insisntent that you need a particular price point, and that you are fleixble on engineering, you can often work to radically reduce your cost.
They aren't being jerks, they have an entirely different set of concerns. I've found that what I often interpret as a stubbornness or arrogance, is often me missing my supplier's scope of conerns. (In other words, I'm being stubborn and arrongant.... oh irony).
You are talking to guys that run factories for a living. Their margins are tight. They care more about the assembly procedure of your product than the broader opportunity of working with you. Keep that in mind while you are trying to play hardball. They'll respond well to opportunities framed up in two ways 1) conversations aimed at understanding the design and manufacturing process of your product (therein helping their team to adapt it to their specific concerns or capabilities), and 2) cash.
It was a surreal to see over 20 + workers and a full production floor filled with our products. I thought to myself how crazy it was that all this came from a little bit of keyword research…
* * *
Most of the hard hitting stuff will get resolved via emails after the discussions at the factory. You probably won’t come to agreements at the factory, and that’s fine. The idea is to feel each other out and get information from each other. Despite all the back and forth, a few tense smiles, and pages full of notes, most of this stuff will be resolved virtually when we are back home. And that brings me to the most important point…
Don’t even think about refusing lunch. You have not been on a factory visit until the management staff has taken you to a private room at a local Chinese restaurant. Blowing it out on lunch is an institution in China, and a very nice one at that. Surprisingly, I don’t think anything significant from a business perspective has really happened at these often hours long lunches. Just enjoy the never ending carousel of delicious dishes, and make plenty of fun of yourself. Chopsticks! What are these!?
Maybe things are changing in China. Nobody managed to get a buzz on, and there isn’t too much food left. It’s common to have a feast sitting on the table after lunch.
* * *
If you are serious about manufacturing in China, @AnythingIan does a monthly mastermind call, and our good friend Matt runs a serious sourcing business based in Shenzhen. Please don’t kick his tires if you can help it.
Cheers,
Dan
PS, you can get on my private mailing list by putting your email address into the form below: