By David Dayton

“Going to China” has become the mantra of the business world. You’re looking East. You’ve done your homework with AmCham (American Chamber of Commerce in China), on the Internet, with other “China Hands” and in your industry. You’ve found your “perfect supplier” on line, even found a second factory as a back-up. You’ve got a great bid on your product. The pictures of the factory look great, the samples are exactly what you want, and the phone conversations with the sales rep, while maybe a little limited, have been useful. You’re excited.

The question is: Do you pull the trigger now, or do you send someone to the factory for you or do you go visit the factory yourself? Here’s a hint: the first option is just a joke—don’t pull the trigger now. Just don’t do it.

Go or send some to go for you. An investigatory trip for yourself or another representative lets you see exactly what the factory can and can’t do; you’ll be able to understand the Chinese production process and share ideas from you own production experience too. In addition the trip will allow you to met with and build relationships with your factory representatives. This will be vitally important later on when there are problems (notice we didn’t say “if” there are problems.).

But, if you are a small to medium sized organization, the trip may be expensive and pull you and some of your best people off line for 10-14 days. If you are not interesting in traipsing around China yourself, then hire someone like SRI to do it for you. SRI has worked with, audited, introduced, visited and rejected hundreds of factories in Asia. We can help you assess your factories’ claims, capabilities and level of social compliance.

Assuming that you’re going to go all the way and either go yourself or send someone in for you, here’s some tips on doing the necessary due diligence to make sure your investment pays off.

Websites vs. Actual Factories
Just like going through the yellow pages or going to a trade show to find a potential supplier, the Internet is buffet of options. But it’s also still a show—i.e. the best case scenarios from unknown or unproven advertisers. It goes without saying that the best website does not always equate to the best factory—and often, they can be just the opposite! While all the online souring sites promise you qualified factory leads—the only qualification over here is money. We’ve talked with many of the big online sourcing sites about what it takes to get listed and advertise with them. The only requirements to get listed with anyone online are a business license and money. All the hype about various site’s trusted members or gold medal standards is simply marketing. You get be a “trusted” factory by paying for the icon (a pretty penny too!) More money gets higher front page rankings—NOTHING MORE. It’s completely up to you to make sure their individual claims are justified.

So even if you done the digital due diligence, the best option is always to visit the factory yourself. You are the best judge of what you’re standards and expectations are. You know your own products and production needs better than anyone else. And, unless your project is so small (financially) that a trip to China works out to be an overly large percentage of your total project cost, a trip is going to be worth every penny you’ll spend. By the way, if your project is that small you may want to question why you are really going to China.

In helping clients do their due diligence we had a really comical experience about 3 years ago. We were bidding out a wood craft project for a client in the US that was working with Wal-Mart for a fall release. We had narrowed our factories down to three finalists in Southern China and set up appointments to visit each one. The one that we were the highest on, because of their first class website, excellent communications about equipment and experience, a comparable product history, great samples and a very helpful manager, turned out to be a shack! Literally a hole in the wall. The manager was a great salesman with a fantastic website, great samples and a total disregard for the truth. The projected production times from these three factories were: 30 days, 37 days and 2 ½ years! Good thing we check them out. We’ve since done more than 10 other projects with this client and 5 wood projects with one of the other wood factories and have had a fantastic experience each time. Two days of travel saved us a great repeat client and years’ worth of profitable projects.

Know the Capabilities of the Cactory and Subcontractors
On site inspection can be invaluable. Not only to make sure the factory is up to your standard in their core competency but also to assure you that all the materials and sub-contractors they do/will use also meet your standards. And if you are a hands-on kind of manager, a trip is great for peace of mind. Being on the ground allows you to both ask and see.

Even when asked, our experience has been that most factories (even very large multinational ones) are loath to tell you that they sub-contract out molds, labor, or any other part of the production process. But the reality is that out sourcing is just as profitable for them as it is for you! For example, most mold injection factories don’t make their own molds and buy their plastic materials from third party vendors. Most clothing factories don’t make their own fabric, rivets, buttons, zippers, ribbons (ribbon factories buy their thread). No one that dyes or paints anything makes their own dies or paints. Any product that includes multiple types of raw materials will at least be buying raw materials from multiple sources if not having entire portions of the product outsourced. Many factories that have fulfillment facilities have outsourced the process since this is often so labor intensive.

In the best cases, the advantages of your factory outsourcing are, again, the same as yours. Cheaper and better products without the hassle of buying the machines, tooling up, and manufacturing the product yourself. And the drawbacks are the same too, namely lack of QA, unknown or unmonitored processes, a lack of control over problems, delivery and general quality.

So, if you know that your factory will outsource, what can you do to protect your investment? You’ve come halfway around the world. Don’t stop now. Go to the sub-contractor’s factory! Duh. Sometimes this will take some work. But if you push you can always see what you’re paying for. Even when your main supplier tells you that they are subbing out you may not be welcome at another factory and your supplier may not want you to go either. We’re often told that if we (meaning foreigners) go to a supplier’s sub contractor’s factory the prices for the next order will go up since the sub contractor knows that the buyer is a foreigner. This may or may not be true for each case, but it’s certainly not the worst thing that could happen. But a sub contractor who isn’t used to your standards could be.

Sometimes the sub contractor is a potential competitor and your supplier is not excited about introducing you to another obviously viable option. More often than not you’ll get to the real hub of the Chinese economic miracle—some dirty grimy backroom with a machine wedged in between the bed and the hot plate (this wasn’t on the website, was it?!). But you want to know. You want to confirm that you’re getting what you were told and what you’re paying for.

Stick to Your Guns
There was a good reason you defined your quality standards before you left for your China trip: making decisions in the heat of the moment is tough. Throw in the fact that you just spent thousands to come over and you’re committed to deadlines back home and you’ve got a world class case of stress.

If it turns out that the grimy hole in the wall is just too much for you to trust or if your trip to your China supplier gives you less confidence rather than more, don’t be embarrassed to say no and call it off. This may be the hardest part of the trip especially if you personally/professionally have a lot riding on the deal (yes, even harder than eating the chicken feet, pig testicles, snails or pork brain hot pot). It will certainly cause some difficult moments if you are being hosted by your now spurned supplier. Your Chinese host will be more than a little embarrassed too (as would you if the tables were turned).

If you think that you need to pull the plug but are struggling with the decision remember a couple of general principles. First, if your pre-trip expectations were not met on the ground then there is a distinct possibility that your supplier over-promised. Chances were, he was betting that you weren’t going to call his bluff with a trip to China. Most people don’t. It may just be that what the supplier told you and what you personally and critically analyze on your own may be two different things (or at least two different perspectives of the same reality). Or you may have just been flat out lied to too.

Second, the money lost prior to starting the project at a questionable factory is always going to be less than how much you can pour into a money pit. If you know, or think you know that it’s just not going to work, cut bait and run now and get started on your second best option ASAP. Don’t get stuck in the desperate and (il)logical thoughts of “ if I don’t do something it’ll be a total waste of a trip.” Remember, the reasons why you’ve decided not to move forward—some of the major ones should be product quality, production times and costs—and realize that you’re probably saving more money than the cost of the trip.

I’m often amazed by the attitudes that people have coming to China. Some are so driven by the competition and the China Price that child labor in sweat shops doesn’t faze them. Some are so negative that clean factories with uniformed employees, relatively high wages and the worlds most modern equipment still won’t overcome their prejudices. Usually first time visitors are optimistically skeptical having heard both the horrible and the unbelievable before their trip. But regardless of attitude, the best results come from those who are principle centered with their standards and focus on results and outcomes. It’s going to be different, but don’t settle for less—you wouldn’t back home!

Two final reminders for you as you work with Chinese suppliers. First, there are at least three levels of quality for most things that are produced here. The first, and lowest level of quality, is for the domestic Chinese market. At this level products may or may not work, be the correct color, size or material or even be in a language readable to the market’s general population. This level is quite often rejects from the two other higher levels. You don’t want this no matter how cheap it is. The most recent example in the news was baby bottles made from recycled CD’s that leak toxic chemicals when exposed to hot milk. I am not making this up.

The second level is product made to standard for the domestic market, made for export to non 1st world countries, or product that was made for 1st world but just failed QA tests. This level of product is usually what you’ll find in stores targeting the domestic market, in black markets or in factories’ warehouses. This is good product but may not meet EU or US standards.

The third level is most likely what you are looking for—high quality, to spec, international standard goods. If you don’t make sure that your supplier and all his suppliers and sub contractors know that this is the quality you expect you will not get this. This is not the default level of production for most suppliers.

Last, everything is negotiable. EVERYTHING. I don’t care what it is, you can always work some kind of bargain or discount. The funny thing is not that you can bargain for everything, but that if you don’t you’ll be taken for more than you would have otherwise paid. That’s just the rule. Everything you buy comes with an assumption that you’ll bargain before you pay for it. Never let a good price go on face value, at least make an attempt at cutting the price. You’ll lose respect in the eyes of your suppliers and get higher starting prices next time if you don’t.

The China Price is real—but you’ll not get it handed to you. You have to work for it and probably even work “face to face” and “on the ground” in China to get it. But information is truly power and in overseas outsourcing it means that you’ll get out of the relationship and the product what you put into it. Spend the time, do your home work, make at least one trip to visit your supplier eat those chicken feet. Then stick to your guns and run to the bathroom!

Good luck!

David Dayton, Silk Road International