Sourcing in Asia 101:
How to help companies working with you on sourcing do a better Job
and consequentially save you money
Over the last five years, we have sourced products for many companies and in many countries. Flower pots from Vietnam bound for the U.S., plastic bags from Thailand and China bound for Europe, handicrafts from Vietnam and Thailand bound for Europe, plastic cutlery from Thailand and China, paper from Indonesia, Capiz items from the Philippines, aluminum, bronze and other types of die- casting from China, Thailand and Vietnam, leather wallets from Thailand and lately China, leather gloves from Thailand and now China, plastic flower pots from Thailand and China, rice from Thailand and Vietnam, precious stones from Thailand and Vietnam plus many other items.
Sourcing is a service that is always in demand. The question for an international business company such as ours is whether the economics work (good quality sourcing takes resourcefulness, attention to detail and ultimately lots of time) and it often is hard to bill for all the time good quality research requires. Global sourcing dynamics are also always changing and a good source today may be not so good six months from now. For example, five years ago when we started,
was still a very good source of leather gloves. Thailand still makes excellent leather belts, wallets and fashion items but has now largely ceased to produce leather gloves as Chinese companies such as those in Haining, Zhejiang Province (about a 45 minute drive out of Shanghai) can produce them so cheaply and there is not a substantial enough design component to give Thai companies an advantage. As another example, five years ago Thailand was not a very good source for car parts, car accessories or specialty automobile items. Today, this has changed and many Thai companies produce quality automobile items at very competitive prices, especially those located in Rayong and in Thailand ’s Eastern Seaboard. Companies in Thailand province centered around Taizhou are also becoming a place to look for these items although industries there are newer. Zhejiang
Leather goods, automobile parts and plastic cutleryA further example is that five years ago,
Hong Kongcompanies had already largely moved their plastic factory operations across the border to province in Guangdong . Despite this, if you wanted plastic injection molded items that required a significant design component, China Hong Kongand companies were your best choice. Today, this is no longer true, Thai companies are better on complicated plastic injection molding items with a high design component although they compete strongly with Chinese firms in Taiwan Southern China. This situation, however, is changing fast and already Southern Chinaoperations are becoming relatively high priced and often are falling second place to newer injection molding companies like those in Province and other “second generation” injection molding locations that are rapidly overtaking Taizhou, Zhejiang South Chinaas the place to go.
China today -Modern and with all of the comforts
A further change in the global scene is that five years ago, travel in China was still largely an adventure and only those who spoke the language or who had access to overseas Chinese as intermediaries traveled there. This also has changed today. All you have to do is to take a trip to
and stay at the Ritz Carlton or any of the centrally located hotels to see bevies of foreign businessmen actively meeting with potential Chinese suppliers. It is true that oftentimes, these adventuresome foreign travelers run into issues with language problems, cultural misunderstandings or just wasting time because of the failure to fully understand the dynamics of Shanghai Asia, the languages and the differences in business culture, but things are changing fast and is not the very unknowable place it once was. China
Also another issue frequently experienced in sourcing is the difference between a company producing a good product and being “export ready”. Many newer Vietnamese and Chinese companies that have been producing for the local market oftentimes produce a good product. This, however, is not enough if the company is going to be a good selection for sourcing. To meet this standard, a company must have had experience exporting and also hopefully to big key markets like the
, U.S. Europeand/or . The company needs to have people who are fluent in English as the international language of business that are internet savvy and hopefully have a professional website and can answer e-mails and understand business principles discussed in such e-mails. Oftentimes this means learning to use return e-mails from yahoo or hotmail as many U.S. and European web servers block e-mail from Chinese and to a lesser extent Vietnamese and Thai websites because the internet service providers there allow SPAM e-mails to be sent from their services leading to them to be on the so-called SPAM blacklist. Japan
As we have performed sourcing projects, there are several keys I believe to helping your partner company supporting your sourcing effort. Here are a few of them:
Investigate the company you are considering hiring to source product and make sure they understand the area, cultures, languages and have had recent experience in sourcing and in the country targeted.
Always first sign a Non Disclosure Agreement (NDA) with your sourcing company. Insist on confidentiality and protection of all information about your company, the product to be sourced and all aspects of the sourcing exercise.
Once the NDA is signed, give the sourcing company as complete an understanding as prudent of the project and what you want accomplished.
Give or jointly draw up with the company you are considering hiring to do the sourcing a written scope of work stating goals, time table, price, agreed milestone targets and a designated final product (written report or other).
Have the sourcing company give you a written letter of offer including a listing of what services are to be performed, the target countries, number of companies to be surveyed, time and cost of study with a clear agreement that no work is to be performed until an agreement is in place.
Don’t expect the company you are hiring to do your sourcing to work on auto-pilot. Stay interested and communicate.
Expect you will probably be required to pay part of the agreed fee for service up-front. Most sourcing companies incur costs from the start of work and won’t front these costs unless for major clients with long term contracts.
Provide written drawings, specifications and other documents of products to be sourced. Explain to the sourcing company key issues from your company’s perspective that will be used in selection so that you and they are focusing on the same key issues.
Realize that sourcing takes time. Don’t expect that the immediate solution is necessarily the best solution.
Keep an open mind. Sometime the solution you are thinking about may not be the best one. Oftentimes a full review of options may take you to a company or a country you had at first not considered.
Lowest price should not be the sole factor. Do not under value ability to communicate, customer service, protection of intellectual property, access to sea ports and other key factors.
Once sourcing recommendations are made, expect that generally you and possibly whoever is helping you may have to travel to look at factories to finalize selection and ensure that everything is as advertised.
On your foreign trip, if you do not speak the language, have never done business in the country and do not know others who have, that you may well need help. Engage an experience professional to assist you. Secure this help early; be open with the individuals as to goals and key factors and listen to recommendations.
Consider the effect of inspections, shipping charges, customs fees, etc. they can really affect whether your projects works or not.
Expect the process to move along briskly but don’t hurry things as mistakes can cost you plus possibly break relationships that could be valuable in the long-term to you and your company.
reminders are common sense guidelines that can and will save you time,
aggravation and help to eliminate misunderstandings and the potential
unexpected costs. Sourcing product
overseas is not simple but neither is it so complex as to be beyond
About the Author:
Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)
Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations. Mr. Runckel is one of only two non-Ambassadors to receive this award in the 200-year history of the U.S. diplomatic service.