Setting Up Production In China For SMEs
Nothing earth shattering here, but nice, really brief, and pretty accurate analysis on what it takes to set up production in China. And anyway, I feel I should run something good on my Seattle newspaper as a counter to my usual negative coverage.
The "article" is actually a Q & A with Susan Schreter who writes a column entitled "Inside Entrepreneurship. This one deals with "setting up production in China" and the question is as follows:
Q: I've designed a novelty landscaping product that serves multiple functions. It wouldn't surprise me if it becomes a $200 million company. What should I know about finding production sources in China?
Ms. Schreter calls in Fred Crosetto, who warns that "the American style of developing cordial, win-win relationships with business partners is not widespread in China" and to be wary of Chinese companies that "seek every opportunity to change terms at will." Crosetto correctly notes that "the most vulnerable American marketers have too much good will, too little understanding of China and too little patience."
Crosetto recommends the following:
1. On-site and constant oversight of production. Check.
2. Good relationship with good partner. Check
3. Make no assumptions. "Americans cannot let their Chinese producers make any assumptions or production decisions, no matter how small. What may be obvious or rational to Americans may not be to Chinese producers." Check.
4. Be realistic. Protect against your product getting "knocked off." Check.
5. Be careful of the small order. Chinese companies favor consistent, large-order business. Check.
He (or Schreter) then suggests producing "prototypes and first product samples in the U.S. and when ready to buy from China, "to keep initial order sizes down to make sure you don't tie up too much cash in inventory that may move slower than you project." Their final advice is to ask questions and seek out advisers who have long-standing experience producing in overseas markets.
I would add to that foreign companies should make sure they have good contract with their Chinese supplier and that your IP protections are in good order before you go to China at all. For another ultra brief summary on what foreign companies need to do to protect themselves from Chinese suppliers, check out "CYA: China Outsourcer Protect Thyself."
Comments
Right on Dan. From my experience here in the South, the same applies. However, most American business people, successful indeed, believe that the same rules apply in China and continue to expose themselves to ridiculously high amounts of risk - with guaranteed bad consequences. Mr. Crosetto can also add too much hubris to his list.
Posted by: Frank Caruso | November 28, 2007 4:21 PM