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China Sourcing 2016 – Is it cost-effective?

2016 January 21

china-sourcing-under-the-microscopeOver 22% of Australian imports come from China. (ABS statistics here.) Hardly surprising, since China accounts for almost a quarter of global manufacturing. Yet recent news reports raise questions about China.

  • Rising wages.
  • Devaluation of the renminbi.
  • Turmoil in the Chinese stock markets.
  • And of course long-standing concerns about product quality.

Even with the China Australia Free Trade Agreement reducing many import tariffs, you might wonder. Is China sourcing worth it?

At Hornet, we believe it is. To explain why, let’s look in more detail.

Rising wages do not make China sourcing uncompetitive.

china-sourcing-2016-wage-comparisonLabour costs in China have certainly risen in recent years. But they started from a very low base.

Compare average wages in Chinese manufacturing to those for local Australian labour. Despite increases, labour costs are still less than one fifth of local wages!

Or you might compare China sourcing to offshore manufacturing in other countries, such as India or Indonesia or Vietnam. Wages are lower, it’s true, but there are other issues to consider.

Productivity

If your order takes 5 days to manufacture in China, but 8 days in India, daily wage costs are note a good comparison. Look at the total labour cost of your order instead. China’s productivity is higher than many low-cost countries. And it’s getting better all the time.

McKinsey found that China’s productivity increased by 11% per annum from 2007 to 2012. That compared with 8% in Thailand and 7% in Indonesia. Plus, with increasing use of robotics, there’s more productivity increases to some.

Infrastructure

china-sourcing-2016-new-silk-road-mapBasic infrastructure like roads, ports and reliable power support manufacturing. China has developed infrastructure already, and continues to invest.
Plans for a ‘New Silk Road‘ are part of a government strategy to open up markets and make trade easy.

It’s not just trade agreements. Transport infrastructure, including freight rail, will make China sourcing more affordable and reliable.

That transport investment is also opening up the centre of China for export-based manufacturing. And wages in inland China are lower than in the coastal regions.

Supplier clusters

In Australia, we know well that the loss of major automotive manufacturers will cause hardship for many parts suppliers. In China, major manufacturers have attracted similar second tier suppliers, who are located close by. So all the parts required are readily available. In addition, competition keeps component prices down.

A devalued renminbi will help keep China export competitive.

For Australians looking to import, the falling Aussie dollar can seem like a big hurdle. But remember, the USD-AUD exchange rate only matters if your contract is in US dollars!

china-sourcing-renminbi-puzzle

With our own offices in China, Hornet routinely negotiate contracts in renminbi. And the renminbi is falling against the US dollar. At least as fast as the Aussie dollar is.

So the AUD-CNY (China yen, or renminbi) exchange rate is unaffected.

As China moves onto the world stage and relaxes restrictions on its currency, the renminbi is likely to fall further still. So Chinese manufacturing will become even more cost-effective.

Chinese stock market turmoil

Chinese stocks tumbled in mid-late 2015. They fell again early this month, triggering a trading halt.

But the Chinese stock market is not as closely linked to the country’s economy as Westerners might expect.

The ABC reports, ‘at best only around seven per cent of China’s population engages with the stock market. Those who do buy stocks can be less likely to trade based on solid reasoning and more likely to simply follow others.

‘More likely to follow others’ means a panic herd reaction is only to be expected.

What’s more, the Chinese government has historically intervened to keep the stock market stable. This January, it appears they didn’t.  ‘There’s been a lot of surprise in the market that China hasn’t slowed this decline,‘ says a Barcalys representative.

While the stock market drops make headlines, they’re really an overdue adjustment. And possibly a sign that Chinese economic management is becoming more like the West.

China sourcing does not mean low quality goods.

We’ve written many times about China sourcing and quality. There’s one key point to make, so let’s make it again.

China sourcing doesn’t cause quality issues. Poor sourcing practice causes quality issues.

Major multinationals (Caterpillar, Apple, Nike, Ford…) manufacture in China. These companies invest in quality control and get quality product from China. (Most of the time! There are some mistakes, like this Panadol syringe.)

Ensuring on-the-ground quality control can be difficult for smaller companies. It’s not always easy to justify international travel, let alone someone full-time in China.  And you might not have staff with relevant experience. Hornet’s services resolve this problem. You can opt for an end-to-end sourcing service, or just ask for help with quality control.

ChAFTA (China Australia Free Trade Agreement

China-australia-free-trade-tariff-reductionsWe’ve written about this previously. It’s good news for China sourcing.

Import tariffs are gradually reducing on items including clothes, footwear, household electronics and cars.

The first tariff reductions occurred on 1 January this year.  The correct documentation is required. More information here.

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In summary, sourcing from China remains a reliable and cost-effective option for many Australian businesses. But it pays to investigate the options for your business. You may want to do everything yourself – in which case you’ll need to invest in regular travel, plus have strong quality control systems, a great deal of patience and good attention to detail. Or you may want to work with a partner like Hornet, with expertise on the ground in China.

Whether you’re sourcing retail items, industrial goods, spare parts or packaging, there are factories in China who can supply you. If you’d like to discuss your needs further, just call or email us at any time.

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Other useful articles from the Hornet blog

Why use a sourcing agency?

Manufacturing Map of China

China Sourcing vs India Sourcing

Impact of the China Australia Free Trade Agreement for Importers

ChAFTA Update

Sources:

http://www.tradingeconomics.com/china/wages-in-manufacturing.

http://www.tradingeconomics.com/australia/wages-in-manufacturing.

http://www.economist.com/news/briefing/21646180-rising-chinese-wages-will-only-strengthen-asias-hold-manufacturing-tightening-grip.

http://www.economist.com/news/leaders/21646204-asias-dominance-manufacturing-will-endure-will-make-development-harder-others-made.

http://www.abc.net.au/news/2015-08-01/a-look-inside-the-strange-world-of-chinas-stock/6665964

http://www.wsj.com/articles/china-market-plunge-has-investors-wondering-about-more-turmoil-1451919595

Custom keyring takes Japan by storm

2015 November 26

custom-keyring-russell-hotelThis custom keyring project took us – and our client – by surprise!

The Russell Hotel is a boutique hotel in the heart of the Rocks, Sydney. Quite by chance, it was featured in Episode 12 of a Japanese anime: Free! Eternal Summer.

The series aired in Japan in 2014. In Episode 12, two of the main characters, Rin and Haru, visit Sydney.

It was the first time the anime featured locations outside Japan. It includes beautiful and accurate images of Sydney landmarks. The Harbour Bridge, Bondi Beach and – wait for it – the Russell Hotel!

The two boys check into the Russell Hotel and are given the key to Room 25. It’s a custom keyring – each room at the hotel has its own custom keyring – and the anime shows Rin tossing the key in his hand.

anime-bondi-beach anime-russell-hotel

Gary Quass, Accommodation Manager at the Russell Hotel, says,

‘We have had nonstop fans coming in and photographing the hotel and also staying in the same room as in the animation.’

And the custom keyring?

‘Fans of the show started to buy spare ones we had here.’

The hotel couldn’t keep up with demand.

We were down to our last one and then I found Ilga.’

That’s Ilga of the Hornet Group, of course.  While the original keyrings were hand-crafted one by one in Australia, Ilga was able to find a supplier in China who can deliver in bulk. So now, all the ‘Free! Eternal Summer‘ fans who want a custom keyring like the one in their favourite anime can get one.

An animated film, High Speed! – Free! Starting Days, featuring the same characters, will be released on December 5, 2015. We’re not sure whether the keyring’s featured, but if there’s a sudden surge in demand, Hornet can certainly arrange for more stock!

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The complete Episode 12 of Free! Eternal Summer is available here. English subtitles. The key comes at around 13 minutes. When Haru and Rin are checking in, you can see all the different custom keyrings for the different rooms on the wall behind the receptionist.

Importing from China – How much do you know?

2015 October 26

importing-from-china-quiz-illustrationAre you a China sourcing expert?

Do you have the knowledge and expertise you need for successful sourcing and importing from China?

  • Can you ensure quality product?
  • On time?
  • Every time?

10 quick questions will help you find out…

Take the China Challenge now!

 

 

 

 

 

Packaging Design for International Sourcing

2015 October 20

packaging-design-crushed-fragile-cartonEven customers who give great product specifications often forget packaging design. Others specify retail packaging, but don’t mention shipping boxes.

This post looks at all levels of packaging for your product.

Why they matter and what you need to address at each level.

Good packaging design needs thought and pre-planning. It may cost a little more. On the other hand, it costs far less than repairing or replacing damaged products.

And for many clients, pre-planning actually saves on repacking costs once goods reach Australia.

Types and Levels of Packaging for your Product

Let’s look at these from the innermost level outwards.

Retail Unit Packaging

This is the final sales packaging for the product. It’s the first packaging most people think of.

Packaging design considerations include:

  • Branding. Logo, tagline, colour, imagery and style are important. So is the packaging material.
  • Promotion. Related to branding, but not the same. Think about special packs for promotional campaigns, like this current Nutrigrain offer.
  • Product protection. Products such as glassware, ceramics and electronics may need internal packaging materials as well as a carton.
  • Ease of stocking. Many fast-moving consumer goods are sold in rectangular cartons. The shape makes it easy to stock shelves. It’s efficient use of space too.
  • Labeling requirements. Regulations vary for different products, but be sure to check requirements in your packaging design.
  • Barcodes. Yours. Your distributors. You may print as part of the packaging, or you may leave a space and apply stickers later.

Inner Cartons

This packaging is one level up from the individual retail unit. If you’re supplying to retailers or wholesalers, it’s the level of packaging you’ll use to deliver to them.

In Hornet’s experience, many clients could improve business results by looking at inner cartons much earlier in the sourcing process.

packaging-design-inner-cartons-outer-cartonsDesign inner cartons to meet your retailer requirements and have goods packed in these cartons in China.

Your unit cost may increase a little. But you save on the expensive process of packing and unpacking your product once it’s imported.

Not only is it less work to do it right first time, in China, you also get the benefit of cheaper labour.

So before you place your next order, talk to your retailers. Then specify inner cartons which satisfy all their requirements.

  • Order quantities. Retailers often have a preferred order configuration – for example, lots of three, or six. If your inner cartons match this configuration, your pick and pack operations in Australia will be much easier.
  • Branding, labeling, barcodes. Your distributors want to make operations easier for their warehouse or store staff.  Find out what their guidelines are and follow them.
  • Remember Occupational Health and Safety. Do your partners have limits on the size or weight of cartons their staff can handle?
  • Carton materials and quality. A common issue here is carton thickness. These cartons are still being handled by warehouse staff in bulk. They need to be able to stand up to this treatment.
  • What about labeling for fragile goods, or markers indicating which way up a carton should be stacked?
  • For some products, the inner carton may double as a retail display unit. This can save a lot of rework and increase sales!
  • Think about what happens when your inner cartons are opened. Remember, warehouse staff have to open hundreds of boxes. They use a knife and they’re in a hurry. An extra layer of cardboard at the top of your inner carton can protect retail packaging boxes inside it.

Outer Cartons

These cartons are your top level shipping carton. They are the units used to pack onto a pallet, or into a shipping container.  They are also known as export cartons.

The key issues for this level of packaging are protection during transport and accurate shipping.

For product protection, there are many aspects to consider.

  • Strength and thickness of cartons. They need to cope with rough handling. They may be dropped or knocked. Bad weather can lead to turbulence during air freight. Container ships roll with big waves, so items may shift even if well packed.
  • Temperature variations. If your product is sensitive to temperature, you need to allow for this. Does it expand or contract? Leave space, but still make sure the product is secure.
  • Humidity. Once a container is packed, there is limited airflow. The air may not be able to hold as much moisture if the temperature drops, so condensation occurs. Include desiccants in your packaging to minimise mould and water-staining from excess humidity.
  • Theft and pilferage. Branding on outer packaging can be a temptation. It doesn’t add any real value. Avoid it.

You do need clear information on your export cartons though. This is often called the ‘shipping mark’.  Usually it includes:

  • Your business name.
  • Product code or other reference numbers.
  • Net weight & gross weight of the carton.
  • Dimensions of the carton.
  • Number of cartons in the consignment (so your cartons might be labeled 1/280, 2/280 etc).
  • Country of destination.
  • Indications if your product is fragile, hazardous or needs to be stacked a particular way up.

packaging-design-shipping-markThe shipping mark can be printed directly onto cartons or attached as a sticky label. It should be waterproof, as cartons may be exposed to rain or other moisture.

Remember cartons are often stacked tightly together, so have the shipping mark on more than one side. (Usually three sides.)

Also consider having the shipping mark in both English and Chinese when shipping from China. So the people handling your shipment understand it!

Additional Export Packaging Options

While most products are packed in cartons, they’re not appropriate for everything.  You may need to use wooden crates or metal drums in some instances. In this case the shipping mark will almost certainly be on a label.

Your export cartons will probably be packed onto a pallet and/or into a container for transportation. Both these options restrict air circulation, so humidity and temperature control become more important. You may need extra measures at this level to protect your product.

Other packaging design considerations

  • Packaging waste is an increasingly important issue.  The Australian Packaging Covenant aims to encourage re-use and recycling of packaging. If you ship to other countries, research regulation before finalising your packaging design.
  • Certain packaging materials may be restricted, or require special treatment. Wood used in crates and pallets is a prime example.
  • Unless you are shipping full containers, the weight and dimensions of your packaging will affect your total freight bill. Light, strong materials and efficient use of space can save you money.

Hornet’s number one packaging advice?

Specify your packaging as carefully as you specify your product. And get it checked as part of your pre-shipment inspection.

For more advice or assistance with your export packaging, just contact us!

China vs India: where should you source and manufacture?

2015 September 24

china-vs-india-flagAnyone sourcing from Asia should be aware of ‘Made in China 2025‘ and the ‘Make in India’ campaign. But to source your product, you need more than government-level campaigns. How do you make the right decision for you? What are the factors in your ‘China vs India’ decision?

Labour Costs

It’s well known that labour costs in China are rising.

Bloomberg reports that the average hourly wage in Indian manufacturing is US$0.92. In China it’s US$3.52.

On labour cost alone, India should beat China every time.  But it’s not that simple.

First up, wages vary dependent on the type of manufacturing.

Compare manufacturing exports of the two countries.

china-vs-india-major-exports

China has a lot of hi-tech manufacturing. This requires more skilled workers. So costs are higher.

Productivity matters, too.  It takes 1.6 times as many worker hours to produce goods in India. So you pay a lower hourly rate, but for more hours.

Adjust for productivity and Chinese labour costs are only around twice those of India.

That’s still significant, of course. But cost of labour isn’t the only factor in the China vs India debate.

Labour Laws and Business Regulatory Environment

‘Simultaneously the most crippling of Indian diseases and the highest of Indian art-forms.’

That’s how Shashi Tharoor describes bureaucracy in ‘The Great Indian Novel‘.

The World Bank’s ‘Ease of Doing Business’ ranking tells the same story. China ranks 90th out of 189 countries. India ranks 142.

To be fair, this ranking is for setting up a business, not sourcing product. But it includes some key factors.

  • Getting credit. This is the only factor where India ranks above China. 36 vs 71.  That’s reflected in payment terms too. A deposit of 30% is standard when sourcing from China, but many Indian suppliers accept a 30 day payment term.
  • Trading across borders. A score of 98 for China vs India at 126. Also, much Indian manufacturing is for the domestic market, whereas many Chinese factories target export markets. (And if you source via Hornet, we”l consider that when selecting a supplier.) So your Chinese supplier is more likely to export, plus the regulation is simpler.
  • Enforcing contracts. China ranks 35 – ahead of the US at 41!  India ranks a shocking 186 out of 189. If anything goes wrong, you don’t want to be dealing with the Indian legal system!

One more thing about Indian regulation. Labour laws and taxes are tougher for companies with over 10 employees. There’s little incentive to expand. So two thirds of manufacturing employees work for companies with 10 or fewer staff.

What does this mean for sourcing from India?

  • Supplier selection is more complex and time-consuming.
  • One supplier may not be able to handle a large volume.
  • Smaller companies often have limited resources and can be less stable.

Companies of under 10 employees exist in China too. But there’s no artificial limit, so the range of company sizes is more balanced. In Hornet’s experience, it’s easy to find the right size supplier for your project.

Infrastructure

china-vs-india-infrastructureChinese government support has also led to good infrastructure.

Transport

Chinese cities and industrialised regions have excellent road networks.  2013 figures show China has 74,000 km of expressways. India has around 600km. The Indian government is investing in infrastructure, but major improvements will take time.

This paper on time efficiency at ports globally confirms that Chinese ports operate at world class efficiency. Indian ports need an extra day on average to process a ship.

Power

In developed countries, we take our power supply for granted. In India, that’s not so.

china-vs-india-powerA 2013 report by the Federation of Indian Chambers of Commerce and Industry details the problem.

  • 5% of firms suffer 21-30 hours per week of power shortage.
  • 21% suffer more than 30 hours per week.
  • 64% feel erratic power supply affects their competitiveness.
  • 61% would pay more for reliable power supply.

In the same year, China State Grid reported that ‘nationwide power supply reliability was up to 99.948%.’

Supply Chain Clusters

Finally, strong supply chains exist in many parts of China. Cities or regions have developed a manufacturing speciality and related businesses cluster close together. Short supply chains mean less material in transit, so less overhead cost. There’s also less risk of delay when demand spikes suddenly.

In conclusion

When Hornet started out a decade or more ago, China was the obvious choice for Asian sourcing. The challenge was quality, not cost. Now the picture is more complex.

Quality manufacturers exist in China. But it’s still inconsistent.  It’s important to audit factories carefully and ensure proper quality control measures. On the other hand, China is no longer the default option for low cost. (Despite the recent devaluation of the yuan!)

At Hornet, we’ve investigated other Asian countries, including India.  We’ve sourced from India. So far, it’s been textiles and clothing. We’ve experienced many of the issues described above. We haven’t opened any offices yet – we worked with carefully selected partners to test the water.  We continue to monitor the Indian market.

In many ways, India in 2015 is like China when we started out. Costs are low, but you need strong quality control. And structural factors like transport and power cannot be controlled. Any international sourcing leadtime should include a buffer. In China, you may need that buffer. In India, you will!

The decision whether to source from China or India depends on your specific project. Ask yourself these questions.

  • What product do you want? In what volume?
  • How much lead-time do you have? What will be the impact of a delay?
  • What’s your quality standard? How much tolerance do you have for variation? (It’s not just precision electronics vs clothing. Quality for luxury retail clothing is not the same as for a give-away t-shirt.)

We hope this article gives a good background on the China vs India sourcing debate. For a detailed discussion of your project, please contact us.

Industry Spotlight: The Chinese Solar Industry

2015 September 16

chinese-solar-industry-shanghai-bundIn November 2014, China announced plans to obtain 20 per cent of its energy from renewable sources by 2030.  Part of the plan to reach that goal is investment in the solar industry.

China is targeting 17.8 gigawatts of new solar energy installations in 2015 alone.  And the country’s 13th five-year plan is expected to set a target of between 100 and 200 GW for photovoltaic.

So it’s worth taking a look at the Chinese solar industry.

Current state of Chinese solar industry

Seven of the ten largest solar panel manufacturers in the world are Chinese.  Key elements such as polysilicon, solar cells, inverters and cables are made in China. Suppliers are concentrated in specific locations such as the Yangtse River Delta. So supply chains are shorter and more cost-efficient.

Many Chinese solar companies benefited from low interest state loans to grow around 2010 to 2011. That’s also one reason photovoltaic costs have fallen world-wide – another factor driving growth. Unfortunately, the falling costs mean low returns for panel manufacturers. They’re operating on razor-thin margins.

chinese-solar-powered-yurt

Ambitious domestic solar targets are a life-saver for the Chinese solar industry.  They certainly helped photovoltaic production exceed US$31 billion in the first half of 2015.

Of course, not all Chinese nomads have solar panels outside their yurts like this picture.  But if you want to see how solar has taken off, check out these NASA photos showing how solar production has increased over time.

Even while growing, the solar panel industry in China faces challenges.  Most production capacity is medium to low end.  One estimate is that 34 billion yuan (US$5.3 billion) is needed to upgrade 20GW capacity equipment.  But Chinese companies can’t afford that. Nor can they afford the R&D to develop more efficient solar technologies. (Current technologies convert less than half the solar energy captured to usable power.)

Export markets for the Chinese solar industry

The Ministry for Industry and Information Technology reports that China exported US$7.7 billion worth of silicon wafers, batteries and modules in the first half of 2015. That compares to $8.2 billion during the same period last year.

Why did the value of exports drop?

There’s increasing competition from other countries for low-end production. Wang Bohua, secretary general of the China Photovoltaic Industry Association, mentions Malaysia and India in particular.

Interestingly, India is in the top three export markets for Chinese photovoltaic cells. The other top markets are the US (despite high import tariffs) and Japan. Interest in clean energy has been high in Japan since the Fukushima disaster.

And a 2014 report from the United Nations Environment Program says that developing countries now make up a quarter of China’s photovoltaic exports.

What about Australian solar imports from China?

Australia’s solar panel industry is centred on rooftop installations. It depends on imported panels. As this figure shows, the vast majority of Australian solar panels come from China.

solar-industry-australia-where-panels-come-from

So the Chinese solar industry is vital to Australia. But it doesn’t work the other way around. The Australian market is just too small. As Tristan Edis writes, ‘There are single plants in China capable of producing more solar PV capacity than the entire Australian market installs.’

So why are prices for solar panels in Australia so low? Low enough that the Anti-Dumping Commission investigated them, although the case was finally dismissed. Possibly it’s because the market size is so small. We’re a good place to dispose of overproduction. This works fine as long as you don’t want a customised product.

The key question for the Australian solar industry is not so much where to source solar panels. It’s what government policy will be.

  • The Renewable Energy Target will require around 6000 MW of new capacity to be built by 2020. This includes all renewables, not just solar. But there is opportunity for both large-scale and small-scale solar projects.
  • Installation rebates and feed-in tariffs will affect adoption of rooftop solar schemes. Get updated rebate information here.

Whatever the policies, the Australian solar industry is maturing and competition is intense. Individual companies will need good marketing and efficient processes to retain and grow business.

Does your company need to focus on sales and marketing so it can grow? Cost-effective, hassle-free sourcing of photovoltaic from China can reduce your operational workload and free up time. To find out more, contact Hornet

 

 

 

 

Saving, losing and giving face in Chinese culture

2015 August 21

face-in-chinese-culture-maskThe importance of Face in Chinese culture

We’ve all heard of ‘face’. Even in English, it’s common to talk about losing face, or saving face. But face in Chinese culture is far more important. Understanding how it works can be very useful.

Different Kinds of Face

The commonest Chinese word for ‘face’ is ‘mianzi’.  ‘Mianzi’ relates to ideas of status, prestige and authority. One’s position in society. This is the kind of face most relevant when doing business.  It is ‘built up through initial high position, wealth, power, ability, through cleverly establishing social ties to a number of prominent people, as well as through avoidance of acts that would cause unfavorable comment’.

The second most common Chinese word for ‘face’ is ‘lian’. Its meaning is subtly different. ‘Lian’ is less concerned with social standing, more concerned with moral and ethical standards.

If you lose ‘mianzi’, your status and authority are weakened. If you lose ‘lian’, your network – everyone with whom you have guanxi – is less likely to trust you.

Giving Face

In English, we talk about saving face and losing face, but we rarely consider giving face. This concept is much more important in China.

Giving someone face can raise their social status in a hierarchical society. So for example, a popular student may reach out to a new student and involve them in a project or activity. This gives the new student social status and ‘face’.  (It also creates guanxi obligations. Giving face is in some ways like investing for the future in a relationship.)

So how do you give face?

  • Avoid public criticism and disagreement.
  • Give gifts and praise.  Seek out opportunities to do this proactively.
  • Use titles. Treat business cards and other symbols of position with respect.
  • Be humble. Downplay your expertise and praise other people’s. Be modest when complimented.
  • Be ethical. Remember the ‘lian’ aspect of face. You may have power, but if you throw it around, you will lose trust, respect and face. On the other hand, when you demonstrate ‘lian’, you give face to those who associate with you.

How Face affects Chinese Business Behaviour

If you’re a Hornet client visiting China, you are almost certainly the customer.  You have status simply because of that. The supplier or potential supplier will want to recognise and acknowledge your face. That’s why they want to give you gifts and take you out to dinner. It’s not all bribery and corruption.

A trickier issue is how to handle disagreement. From a Chinese perspective, disagreeing, or even saying you can’t have something you’ve asked for, means you lose face. That makes it hard for them to say no to you – especially in public.  Most likely, they won’t say no, they’ll just avoid saying yes.  That’s something to watch out for.

face-in-chinese-culture-emotionsFor example, you want a particular type of plastic used in your product, which is not the supplier’s standard. Maybe the supplier says, ‘That’s interesting and worth considering. Have you thought about your initial volume?

You might think he’s really going to investigate your preferred plastic. In fact, he knows it’s not available, or it won’t fit within the prices he has quoted. He just didn’t want to disagree with you publicly. So he changed the subject instead.

You need to note occasions like this and follow up later in private. A good option would be to say, ‘I mentioned xyz plastic as an option to use, but with your expertise in different plastics, you may know more than I do.‘ Now you’re giving clear permission to disagree.  You’re also giving face by praising his expertise.

Or perhaps you’re further on in a project and a small detail is not going quite as you’d like. However frustrated you are, try not to shout and scream in public. If you cause someone to lose face over a small matter, they’re not going to be honest with you when something major happens. Face in Chinese culture, is not ‘just business’. It’s their personal face as well.

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For Hornet as a sourcing company, it’s interesting to note how ‘face’ affects client-supplier relationships.  The Western relationship is traditionally adversarial. The client pushes to get more, at a lower price. The supplier fights back and negotiates to keep margin. In a Chinese supply chain, the approach is more about ‘how we partner to deliver the best possible product at the best possible price to the end consumer.’ The pricing negotiation is still there, but it’s framed in a different way. And more and more, we’re finding that Western procurement takes this approach too.

Made in China 2025

2015 August 19

made-in-china-2025-solar-panelsMade in China 2025.’

Have you heard the phrase?  We certainly have.  It’s the official ten year plan to transform Chinese manufacturing, published in May this year.

Manufacturing drives the Chinese economy. In recent times, it’s facing major change. Rising labour costs. A shift from labour-intensive tasks to hi tech production.  Plus there’s the growing Chinese middle class, so manufacturing is looking at domestic markets as well as export.

Key Elements of Made in China 2025

The Made in China 2025 initiative has been compared to Germany’s Industry 4.o, which was adopted in 2013. But there are some key differences.

Germany starts from a base of hi tech manufacturing. Quality is consistent. There’s a high level of automation and robotics. The German initiative is about harnessing IT, especially the internet, so that companies can network and innovate globally.

China starts from a very different point. There are efficient, high quality manufacturers in China – we know, we find them for our clients!  But overall, quality is uneven.  China has more challenges than Germany. So Made in China 2025 is broader in scope.

  • It pushes quality over quantity in production.
  • It seeks sustainable development. (We all know about air pollution in China!)
  • It focuses on innovation.
  • It aims to structure Chinese industry more efficiently.

This includes developing local supply. While China has plenty of hi-tech manufacturing, much of it is actually assembly. Key components often come from overseas. For example, China spent US$210 billion importing integrated circuits in 2014. That’s more than it spent on oil!

Producing chips and circuits locally would truly transform China’s manufacturing. One goal of Made in China 2025 is to raise domestic content of core components and materials. Targets are 40% by 2020 and 70% by 2025.

The plan calls for market investment more than government funding. And it focuses on meeting international standards rather than domestic ones. China is still interested in export!

Focus industries of Made in China 2025

While the plan addresses all of China’s manufacturing, 10 industry sectors get priority.

  • New advanced information technology.
  • Automated machine tools & robotics. China already accounts for 20% of global robot sales. The world’s first fully automated factory has opened in Dongguan.
  • Aerospace and aeronautical equipment.
  • Maritime equipment and high-tech shipping.
  • Modern rail transport equipment. China is making a name for itself in high speed rail.
  • New-energy vehicles and equipment.
  • Power equipment.
  • Agricultural equipment.
  • New materials.
  • Biopharma and advanced medical products.

Implications for companies sourcing from China

China is hoping to challenge hi tech manufacturing in the West, Japan and Korea. If you’re in hi tech, there could be good opportunities. However, keep a careful eye on specification and quality control. New domestic parts manufacturers could be a quality risk otherwise.

What about low tech sectors?  China exports are still driven by clothing, shoes, toys and furniture. Government subsidies and support for these sectors have decreased. Labour costs are rising.  Manufacturers are under pressure. When choosing a supplier, it’s more important than ever to conduct a thorough factory audit. Make sure your supplier is financially stable as well as capable.

In short, the basics of sourcing haven’t changed. It’s just a matter of paying extra attention to risk points. That’s what the Hornet sourcing process does. So our clients have peace of mind.

One other aspect of the plan is developing human talent in China. Skilled staff can create more efficient processes. That’s one way to combat higher labour costs. China wants to keep costs low. If Made in China 2025 delivers productivity gains, that will be a win-win.

For more information on Made in China 2025, or about sourcing from China in general, contact Hornet.

Finding a Factory in China – A Real Life Example

2015 July 28

Many of Hornet’s sourcing projects start with finding a factory in China.  Today we’re sharing a real-life example of how we do that.

finding-a-factory-bamboo-warehouse

Background

The client for this project is working with us to source an apparently straightforward product. Bamboo stakes for gardeners.

Sounds simple, doesn’t it? China, the home of the giant panda and of the bamboo pandas eat.  And all we need are lengths of bamboo cane.  How hard can it be to harvest, trim and ship bamboo from China to Australia?

Challenges

Quality

Our client has a number of quality requirements for the bamboo stakes.

  • Species of bamboo. (There are around 1200 species of bamboo, with different characteristics. Many rot quickly when inserted in the ground, which is clearly not good for bamboo stakes!)
  • Length of the stake.
  • Diameter of the stake.
  • Size of the hollow in the middle of the bamboo.  This is important because it affects the thickness of the bamboo wall, which affects strength.

Import Regulations

Even more important is that bamboo is a plant material.  Import to Australia of any plant materials is heavily regulated.

We consulted our customs broker and the Import Conditions Database to confirm regulations. Search on bamboo and you’ll find not just general requirements, but more detailed ones for certain species and certain uses. We needed to be sure that the bamboo was cut, dried and treated correctly before import.

Finding a factory with experience in bamboo for the Australian market was a key decision factor.

Factory Location

Bamboo factories are located all across China. We needed one with good access to major ports for easy shipping.

Continuity of Supply

Demand for bamboo stakes changes rapidly with the season and the weather. We had to be sure we could get additional product quickly at any time.

Some bamboo factories process only bamboo from their own plantations. Some have a network of suppliers across China.  This gives better reliability, so we added it to our selection checklist.

The process of finding a factory

Initial research

Jack Wen, who heads up the Hornet team in China, researched several dozen factories. Many were eliminated due to poor location, lack of experience exporting to Australia, or uncertain supply.

Jack also checked factory registrations were correct and up-to-date. He looked at the factory size and number of employees. A good fit with the client’s expected volumes means a factory which can handle volume, but where the client’s order is big enough to matter.

After the research, Jack had a shortlist of 5 factories. Now it was time to inspect physically.

Factory Inspection and Audit

The inspection visits helped Jack eliminate two more factories.

One was close to ports, but the actual location was remote and mountainous.  In bad weather, the roads would be impassable.

Another had a very small drying area and warehouse.  This meant it would be less responsive if order volumes changed.

finding-a-factory-bamboo-drying

Client Factory Visit

For this project, the client wanted to visit the factories and conduct final negotiations in person. Our China team organised the visits and Jack accompanied the client. He assisted with translation, plus provided advice and feedback to our client.

Practical benefits of using Hornet

Time saving. Imagine identifying and researching two dozen factories by yourself.  Without a native Chinese speaker who knows where to investigate online. Even just location and registration status would take many hours.

Cost saving. In this case, our client wanted to visit the factories for final negotiation, so they still spent money on a trip to China. But Jack’s previous inspections saved them time and money spent visiting unsuitable factories.
Many of Hornet’s clients don’t visit China at all. We negotiate for them. So they save thousands of dollars in travel.  (They save several days of time as well!)

Improved communication. Having a native speaker who understands the business culture makes communication easier. And since Jack was involved in the project from the start, he understood our client’s needs far better.  That meant he could advise as well as interpret.

Emphasis on quality. The factory shortlist was not decided on price. It focussed on consistent supply of product to meet Australian standards. Unless you know a factory can deliver what you need, there’s no point in discussing costs.

Do you need help finding a factory in China? Contact Hornet and let’s discuss how we can help.

HotelTonight’s Australian Launch – How Hornet Helped

2015 July 3

hoteltonight-surfboard-close-up
‘Plan less. Live more.’

Play more. Relax more. Explore more. Unwind more. Indulge more.

That’s the promise of HotelTonight, a last-minute hotel booking app which has just launched in Australia.

(‘Surf more.’)

HotelTonight may be a hi-tech San Francisco start-up, available only on mobile, but it still understands the importance of real world delivery. And Hornet has been delighted to help out.

The press has focused on some really cool features of the HotelTonight app:

  • you can book a room in just 10 seconds!
  • discounts of up to 50%
  • guaranteed rooms available for every night of the year

Meanwhile, Hornet and the HotelTonight team have been doing all we can to make the delivery live up to the promise.

For them, it’s been about hand-picking top hotels in Sydney and Melbourne for the launch. About publicity. About organising a launch event and other activities to help stand out in the travel market.

For us, it’s been about sourcing a whole range of items to assemble into the HotelTonight ‘spontaneity kit’.

hoteltonight-spontaneity-packThese nifty little bags contain all you need when you make that last-minute decision to stay overnight rather than make the long trek home. Toothbrush, toothpaste, a change of undies. Even a pair of sunnies to hide the bags under your eyes in the morning. Everything in the pack is branded with the HotelTonight logo and the whole idea is to fit in with the company’s spontaneous and fun image.

Fun doesn’t come without any challenges. We needed the first hundred packs ready on a very short lead-time before the Australian launch. Then we had more time to finalise the bulk of the order.

So how did we do it?

In consultation with the HotelTonight team, we decided to split the sourcing.

For the small initial order, we worked with our sister company Xpadite to fulfil locally. We accessed their network to source items and overprint with the HotelTonight logo and slogans. Local sourcing also meant we could meet face-to-face or talk on the phone with no time difference. Samples arrived overnight or even the same day. And there was no risk of international shipping delays to mess up deadlines.

For the rest of the order, we leveraged Hornet’s overseas offices to source more widely and control costs. We used our experience with the initial order to refine specifications and quality checklists too. The separate parts of those orders are all starting to come in now, and we’re happy to say the quality is just fantastic.

It wasn’t just sourcing goods, though. All those things needed to be put together to make HotelTonight spontaneity packs. We did that in our local Australian facilities, where we’re also storing stock until it’s needed.

So who gets the spontaneity packs?

  • Some were sent out to journalists and bloggers as part of a PR campaign around the launch.
  • Some were in evidence at the launch party last Sunday. (Thanks for the invite, Stefan, Meagan and team!
  • Some were at the pop-up hotel suite at the Overseas Passenger Terminal in Sydney.
  • We’re guessing some will be at the next pop-up suite in Melbourne in August – but if you want more details of that, you’ll have to download the app.

hoteltonight-pop-up-suite

And in case you’re wondering, at least one member of the Hornet team has tried HotelTonight in Australia already. Scored a room at $50 less than it would have cost any other way. Had a fantastic time. And true to the HotelTonight motto, it was booked on the spur of the moment.

With fun at work and a great offering like this, HotelTonight is one company Hornet are thrilled to be working with.

hothoteltonight-pop-up-suite-bed

hoteltonight-pop-up-suite-pillow-fight