Blog Topic | July 4
I recently accompanied a client on a trip to China with the aim of sourcing machinery for a new factory he wishes to commence. He asked me to come along due to my previous experience in China having studied part of one of my Masters degrees in Shanghai along with importing from China in my previous business. This was my sixth visit to the Middle Kingdom and the first time I had been there for five years.
Some immediately obvious and notable changes have occurred. It is blatantly obvious that the wealth of individual Chinese has increased. Obvious poverty has all but disappeared and the number of beggars has decreased significantly. The number of motor vehicles has grown dramatically and the quality of the vehicles is surprisingly high. The Chinese people seem to have embraced many western traits, especially in the major cities of Shanghai and Guangzhou. Western fashion, food, hairstyles, tattoos, music, movies and luxury goods (designer branded handbags, perfume, accessories, etc) have permeated through society.
My client had been looking at machinery sourced in the USA and Europe but the cost made the business case for the new venture less viable and far riskier than he was comfortable with. When I suggested to him that the same machinery may be sourced in China at a discount to the prices he was receiving from elsewhere he was keen to have a look but sceptical that the quality of the equipment would be comparable. We agreed that I would make some initial enquiries through contacts I had and see if pursuing it further was worthwhile. Our initial enquiries revealed that a saving of over ten times was on offer by sourcing the machinery from China. This amount seemed unbelievable so we investigated further to see why there was such a huge price discrepancy. We found nothing to alarm us in those further investigations and in fact one of the suppliers had already sold a machine into Australia. Some more investigation revealed that the machine had been working for over two years without breakdowns or any other significant issues. My client started to get excited at this stage because the reduced start-up cost made the new venture very attractive.
The decision was made to go to China and see for ourselves. Appointments were made with various people and a trip to the China Import and Export Fair in Guangzhou was tacked onto the end of the trip. For those of you that are yet to visit China it is important that you leave your plans reasonably fluid and are prepared for things to change at a moment’s notice. The Chinese are like that. Plans change and arrangements are altered without a whole lot of regard for what was in place. Letting that upset you will increase your frustration and probably make you appear rude to the Chinese.
Of course the language can be a big barrier and without a good and reliable interpreter your business is pretty much doomed from the start. Most of the factories that deal offshore will have English speaking employees. These tend to be the executive assistants and are quite often women. It doesn’t hurt to spend a little time to learn some basic phrases in Mandarin before you go. Being able to say hello, thank you, cheers, and count to ten will impress your hosts and give them the impression that you are trying to be accommodating. The factory we were mostly interested in supplied an interpreter and she turned out to be terrific. Sure her main loyalty was to the factory but in the end we had already been given indicative pricing and were more than happy with it so the negotiation part of the visit was fairly easy going. Our interest was more in the technical ability of the machinery and the quality of their manufacturing process. Chinese factories are vastly different to our factories. The scale is usually huge and the focus on safety less intense. The Chinese take the view that workers are responsible for their own safety and shouldn’t do things that put themselves or others in harm’s way. That said you need to be alert when visiting their factories as they expect you not to get in the way and to look out for your own safety. The workmanship we observed was, however, of a high quality with the finished product looking and operating every bit as well as the far more expensive American and European versions.
The procedure and timeline for ordering a machine went something like this:
This machinery although large is relatively simple with minimal electronics and computerisation. The design is simple and robust with the minimum number of moving parts possible. I have high confidence that it would do the job my client has in mind for it without any problem. He is over the moon that his new venture, which is part of a vertical integration strategy, is now close to becoming a reality. He has great confidence that the new venture will be successful and create great value for his business.
The China Import and Export Fair (Canton Fair) is one of the most amazing events you could ever subject your senses to. This was my third visit to the fair and it astounds me that it keeps growing from my previous visits. There are three buildings in Pazhou that house the fair and there scale is hard to comprehend until you see them (it’s even hard to comprehend when you do). There is a total of 1.18m square metres of exhibition space…that’s 118ha..!!! There are over 60,000 exhibition booths. Around 200,000 overseas buyers visit the fair. The last fair reported turnover of 27 billion USD. It is a truly gargantuan enterprise that boggles your mind.
My biggest tip for anyone wishing to go to the fair is to be organised and have a plan. There is no chance in hell you can see everything. Make sure you know what you want to see, prepare a game plan around those item’s location at the fair and stick to your plan. You will walk kilometres while you’re there and you will collect a heap of brochures and product catalogues. Most seasoned buyers take a rollaway cabin bag with them to carry all the material they are given. Wear comfortable shoes!! Your feet will still be sore at days end but not as sore as they will be if you wear uncomfortable shoes. Be prepared with business cards but don’t put an email address on them that you don’t want bombarded with emails. My tip is to create a new email address just for the fair and use that on your card. That way when you’ve got a spare hour or two you can sift through the hundreds of emails you’ll receive following the fair. It’s also a good idea to have your details translated into Chinese and printed on the reverse of your business card. Most of the exhibitors will have English speaking staff and they are generally very helpful and enjoy showing you their products. They love to have some fun so don’t take it all too seriously and enjoy the interaction.
China is not as inexpensive to visit as it was five or ten years ago. Hotels are still slightly cheaper than our capital city hotels but eating and especially having a drink have caught up with and in some respects gone past the prices we pay here. Other things are still good value such as tailored clothes and footwear. However, if you happen to be larger than average size you will struggle finding “off the rack” goods to buy. Getting out of the major cities is the best way of reducing the cost of your visit and the further west you head the cheaper, and less western, things become. The local food can be challenging. The further north you go the more challenging it becomes. What we know as Chinese food here bears little resemblance to the real thing but the closest the food there comes to it is in Guangdon Province in the south.
Suppliers and factories you may deal with will most likely want to take you to dinner. That usually means a Chinese banquet with heaps of food and toasts with the local rice wine spirit known as Baijiu. Baijiu is a strong flavoured and potent spirit that is generally drunk while dining in a series of toasts involving the clinking of glasses and saying gam bei followed by downing the shot in one go. The Chinese believe that as a host they gain face if they can help their guests to become intoxicated. Trust me it’s not hard to do drinking this stuff…
Face is a very interesting topic when considering doing business in China. It’s critical that anyone who desires to do business there learn the basics of what giving and receiving face is all about. It’s very complicated but also very important to the Chinese. There’s a good article on the subject on this link https://chinaculturecorner.com/2013/10/10/face-in-chinese-business/ .
Our trip to China has proved to be a successful one with my client coming home with a large number of opportunities whizzing around inside his head. We visited Hong Kong, Nanjing, Nancheng, Shanghai and Guangzhou. We enjoyed cultural experiences, saw a lot of sights and achieved our business aims. The endearment I feel for China and her people grows each time I visit as does my understanding of the culture. I will definitely go back.
If your business trades with China why not contact us to explore ways to be better.