China direct sourcing – 5 issues you must know – (2)

Read time: 3.5 minutes.

This is part two of this mini-series.
In the first part, I talked about some of the issues you must know when you implement the China direct sourcing strategy.

If you missed the first China direct sourcing strategy post, I encourage you to read it here.

 

Problem-solving – Are you in control?

When we enter a business deal, we all want to profit together and have long term relationship.
Still, each of the sides brings their own agenda.
At the end of the day, in the context of this post, we usually do business with for-profit companies and even nonprofit organizations can’t afford to lose money. Therefore, it is possible that there will be a conflict between the different agendas.

Sometimes a trading or an engineering company is also involved in the supply chain (as they buy from the manufacturing facility and sell you, the buyer). And they bring their own agenda.
Many times part of the reason why that third party is invited to the relationship in the first place, is because, in the very beginning, they have information or the ability to do things, the buyer does not know, or is not able to do.

However, as time goes by, and as the second and third orders are being placed, the amount of information the trading company has that the buyer does not have decreases (like the identity of the factory or the type of machines the factory has) and while you always need someone on the ground to help you make sure your interests are being protected, as a buyer, your dependency on the trading company decrease over time.

 

One supply chain – Many agendas – many risks

One of the biggest risks for a trading company is to be bypassed by its buyer. This is unethical and buyers that are looking to maintain good reputation will never do it…but it is still a risk, and technically it could happen.

Other than the difference in agendas, each of the parties (factory, trading firm and buyer) is exposed to different risks, and in many cases, the amount of control each of the parties has over the process does not match the level of risk the same party is exposed to.

For example, a factory bought by mistake the wrong type of raw material is now exposed to the risk of losing the dollar value of the raw material. The factory best interest may be to tell the end buyer about the mistake and risk order cancellation which may allow the factory to use the raw material for another order and minimize the loss. It is possible, that the trading company, on the other hand, is more worried about being exposed to the risk of order cancellation as they don’t have to pay for the cost of the raw material. Their highest risk is a loss of revenue. Some trading companies will choose not to tell the buyer and convince the factory to buy the right raw material and deal with the possible delay in shipment later.

Often, when problems occur in the production line, the buyer’s interest is to be notified immediately so that have the chance to decide which solution works best for them. This is because the buyer knows best how changes will impact their ability to sell and their customer satisfaction level.

Since the trading company usually controls the communication lines, the final decision whether, when and how to notify the buyer of issues that arise during production is done by the trading company.
For this reason and others, you would like to make sure that the people who protect your interests in China have as similar agenda as possible to yours.

 

Communication

The China direct sourcing strategy present two obstacles that can impact negatively the quality of communication between you and your factory in China.

Language:


There are many people in China that speak really good English.
There are also many people in China that speak medium to basic level English. Not in every team of every factory, there are people who speak fluent English and sometimes you will find yourself communicating with people whose English is a bit difficult to understand, especially when you are trying to talk to them on the phone in the middle of your or their night. In many cases, patience and a mutual will to work together can solve this difficulty, but when there is a crisis to manage and you need accurate information NOW!…a language barrier could be stressful.

 

Business culture:  


I mentioned this in another post. When we interpret messages we receive from other people, including tone of voice and body language, we use our own culture to try and understand not only what the other person is saying, but also what they really feel and what they intend to do.
We use our culture as a key to decipher the messages we receive.

But what happens when the person that is sending us the message comes from another culture. Don’t we need their culture as the key to understanding their message?

 

In this two-post mini-series, I was talking about issues you should be aware of when you decide to implement the China direct sourcing strategy.
Sometimes all you have to do is figure out what resources you have in-house, and which of them is best to use to tackle each of these issues.

Sometimes you don’t have the resources in-house and then your need to work with companies who do have those resources.

 

How do you do it in a cost-effective way? Please contact us and we’d love to talk to you about that and help you in any way we can.

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