Product Global

Raising Your Supplier's Prices in China: Not the Answer You're Looking For

So much to chew on lately in the blogosphere and media regarding China's quality, prices, liability, etc.  There is a lot of noise out there regarding "who" is to blame and "why".

Paul Midler, of TheChinaGame blog, recently wrote a post entitled The New Bugaboo: Low Prices. Midler presents some good counter-arguments to those out there that claim US businesses' chase for low prices is the true culprit in these quality fiascos. Midler's general points are:

A) US companies cannot fully control their suppliers.  Chinese suppliers, just like any person, are in control of their own actions and decisions.  Consider the analogy he uses:

Consider yourself in this situation: You ask someone to run to the store to buy you a candy bar, and you give him more cash than necessary. Keep the change, you tell him. The guy gets to the store and decides to shoplift the candy bar instead of paying for it. Are you responsible for this person’s unethical actions?

B) Putting the blame on the abstract cause of "price pressures" to excuse Chinese suppliers' failure to live up to certain standards in environment, labor, and quality criteria simply passes the buck in terms of responsibility.

C) Simply paying the suppliers more money to solve these problems is a ridiculous notion.  If actually implemented, many Chinese suppliers would be laughing all the way to the bank with no intention of actually improving conditions to the level that we'd like.  Unless we were of course to pay more next year, right?  Paul offers another good analogy:

First, if you give more money to a supplier who has behaved unethically, isn’t that sending him the wrong message? What would these people say about a CFO caught embezzling corporate funds? “Well, he must have taken the money because he needed it. Let’s give the guy a raise and see if the problem clears up on its own.”

I agree with Mr. Midler.  Price is the reason companies approach low-cost countries, like China, with manufacturing in the first place.  It isn't the Sichuan hotpot dinner (although I do find myself wandering out to restaurants specifically for this reason).  Simply paying more for a given product will probably do nothing to fix the issue.  Consider this little anecdote I wrote a while ago about surgeons masks being offered at a factory I toured in Shenzhen.  U.S. companies wanted surgeons masks available to factory workers.  The factory begrudgingly purchased them.  Half the workers didn't want to wear them. 

In another case, an associate of mine with a U.S. automotive tool sourcing company a few years back, got burned when he offered laptop computers to some employees.  Being new to China and a bit naive, he thought he would give laptop computers to three employees in their newly formed Changzhou office.  Supposedly, the workers would be delighted and their productivity would improve.  The employees were gone, laptops in tow, in a matter of a few weeks. 

These are only two, small anecdotes.  But they demonstrate a point. It goes far beyond simply offering a piece of equipment, clothing, or raising the price.

Getting to "Bennett": Design and Marketing Personas for Your Product

Developing a product design and marketing messages for:

• 39 of 100 users, ages 35-45, subscribes to 2 electronic device related magazines/newsletters per year, from San Jose, CA, average time on PC = 9.0 hours/day, average TV watching hours/day = 3.0

seems to be more difficult than to develop and market to:

• "Bennett", a 37 year-old, tech geek, from San Jose, California, who spends 9 hours a day on a computer, doesn't have a girlfriend, wears ties with short sleeve dress shirts, and lusts after the IPhone as much as he does Jessica Alba in Dark Angel reruns.

Bennett is a made-up guy.  But he'll probably add a lot of value to a product designer or marketing team when developed from the above spreadsheet.  Far too many companies and entrepreneurs are sinking money into products that will never get off the ground because they did not let the market lead them down the path. 

User-driven design, user-led innovation...development...marketing.  Sure, all of these buzzwords sound great.  Companies often employ a number of techniques into their development processes, but the kernels of valuable information they extract often get tainted, lost in the shuffle, or dropped entirely, as the marketing and engineering processes water down what started the whole thing.

Marketing and design personas are a tool that have become increasingly popular in the last few years, as a way of taking quantitative and qualitative data and fleshing it out into a story or persona of who their customers are and what their customers do.   These can get off track as well, particularly if they're taken too far and the real purpose is lost.  But they still seem to be a useful tool in giving people something emotive and substantive to connect and work with, rather than reams of data.

How do we get from data to..."Bennett"?  The best design and marketing firms in the world get intimate with their potential customers by interviewing them, watching them in action, and staving off assumptions about them until they have a significant amount of research--qualitative and quantitative.  Based on this research, they craft stories about their intended user which become personas. They are experts in the process just as much as the market.  That's why firms like IDEO can work on all kinds of products for different companies in different industries.  They're masters of the process.   

Here are some useful "how-to" resources to help you resuscitate, refresh, and reinvigorate the process of understanding your customer and letting them lead your creation of design and marketing stories and personas:

• IDEO's Five Point Model for Strategy by Design - article in Fast Company magazine

• Getting From Research to Personas: Harnessing the Power of Data - article by Kim Goodwin, Director of Design at Cooper, through MarketingProfs.com

• Do You Know Personas - blog entry at Pragmatic Marketing

• My Shoe Fetish and Why Personas are Invaluable for Marketing - blog entry at Marketingsherpa

• Several useful articles at Cooper's Journal of Design

September 22, 2007--Inventors Alliance Presentation: Manufacturing in China

I will be joining the Inventors Alliance this Saturday (9/22/2007) at 10:00am, in Silicon Valley, to lead a workshop on manufacturing in China.  For those in the Bay Area, feel free to join us as there should be plenty of good dialogue regarding insights and challenges in manufacturing in China.  I'll be covering topics on the process, players, tips, myths, risks, must-do's, must-not-do's (yes, I just made these terms up), and more.  You can attend in person or order the video.  The details are below and hope to see you there:

Event Details (Registration - Price - Location - Date - Time)
------------------------------------------------------------------

REGISTRATION: These are the ways to experience this event.

1)**Attend In Person**
at 120 Independence Dr, Menlo Park, CA 94025
35 minutes South of San Francisco, CA. 25 minutes north of San Jose, CA
http://inventorsalliance.org/092207.html

2)**Order The Video**
For those of you not living in the San Franciso, Bay Area or just short
on time and not able to attend in person, you can order the video online.
http://inventorsalliance.org/092207.html

We will send you the download link three business days after the event.
Download the video and watch it whenever you want on your computer.

3)**Bundle**
Attend in person + get the video for only $5 more.
http://inventorsalliance.org/092207.html

PRICE:
Attend in person of buy video
$15 Members
$25 Non-Members
$60 Membership
http://inventorsalliance.org/092207.html

LOCATION: Tech Shop 120 Independence Dr, Menlo Park, CA 94025
http://maps.google.com/maps?f=q&hl=en&q=120+independence+drive,+94025&sll=37.0625,-95.677068&sspn=39.456673,92.548828&ie=UTF8&om=1&ll=37.485313,-122.179341&spn=0.011714,0.028667&z=16&iwloc=addr

DATE:
Saturday, September 22nd

TIME:
Check In & Networking:
9:15 - 9:45am

Welcome:
9:45 - 10:00am

Workshop:
10:00am - 12:15pm

From Garlic to Cell Phones: A Product Brand is Hard to Get and Essential to Keep

Gilroy, California, the "Garlic Capital of the World".  This town holds an annual garlic festival and delivers the bulk of the garlic eaten in the United States.  But, this garlic isn't grown here in Gilroy anymore.  It's imported from China.    

The overfarming and commoditization of garlic in Gilroy led to a decrease of Gilroy's garlic value in the market by over $70 million.  Chinese garlic sales are up 5000%.  But, while Gilroy's own garlic has gone downhill in dramatic fashion,  garlic farming is still thriving in the United States: just in New York rather than Gilroy.  In New York, it is much more difficult to farm garlic than it is in Gilroy.  Regardless, chefs and garlic connoisseurs (if there is such a thing), believe that the taste of New York garlic is worth paying a premium for--whereas Gilroy garlic, not so much. 

Seth Godin, in his book The Big Moo: Stop Trying to be Perfect, and Start Trying to be Remarkable, explains the above story and the importance of brand.  Godin points out that as soon as Gilroy sold their garlic far and wide, by making it a cheap and boring commodity, they set themselves up for new entrants to come in and create a tough price competition.  To try and fend these new competitors off, they began over-planting. 

Godin explains: "Once you make the standard, you've created a commodity.  Customers will seek out stuff that is the same as your's, but cheaper.  That is why China won."  New York farmers, who run garlic farms that are but a fraction of the size of California mega-farms, are profiting from and ecstatic about the prices at which they sell their garlic.  These farmers are thriving because they've protected their brand and product from becoming average and differentiated from competitor garlic by price only.  Unlike the price of garlic, the brand of garlic is not something that new companies from around the world could come into the market and compete on easily.

Why is this so difficult to do? 

Gordon Graham writes the blog, Broken Bulbs: Innovation.  Graham is currently in Taiwan performing post graduate research on the innovation strategies of Taiwanese firms active in multiple country markets.

In a post entitled "Brand Innovation in Taiwan", Graham writes:

Here in Taiwan many of the high-profile OEM/ODM firms are having a go at developing their own brands as a way out of the price game and its teeny-weeny margins. Though many firms are attracted to the idea of selling their own-branded products, they are finding that moving from OEM/ODM is not as easy as it looks. Many have given up -- retracting back into what they do best: manufacturing complex, mass-produced electronic products in low-wage locations for other firms. Why is the move forward into brands so difficult for these Taiwan-based firms?

Some of the interesting reasons he cites?

- It requires patience. It can take years to get a return on the investment.

- It requires a deep interest in and understanding of country-markets in far away lands.

- It requires an interest in and understanding of other cultures.

- It requires a change in attitude: you can't treat your staff as if they still work in a factory.

- It requires a loyal and committed staff that buy into the brand idea.

- It requires moving directly into the media spotlight -- something many Taiwan-owned businesses prefer not to do.

- A brand requires an authentic story -- not anonymous, behind-the-scenes PR.

- A brand is often linked to a country of origin and this needs to be actively articulated.

As the Taiwanese are finding out, branding is a challenge.  Branding is about creating and spreading ideas, messages, and experiences.  Cooking and eating garlic is pretty standard, unless it's $9 a pound garlic from NY.  That's an experience.  Talking on a cellphone is pretty standard, no matter the phone--unless it's an IPhone.  Branding takes time, resources, and care.  So does manufacturing high-quality products.  But branding is altogether quite different than what's required to manufacture 100,000 units of a cell phone.  Those that make the investment in brand, can sell a bottle of water for up to 1000x the price of tap water.  They can sell garlic up to $9 per pound.  A cell phone for $600.  And maybe...$300 socks someday? 

In branding, the sky is the limit.  In manufacturing, you can hit the floor pretty fast and before you know it, your product is produced as cheaply as possible in a given location and there is no way to accomplish this task more cheaply except by picking up and moving to a new destination.

It's no secret that fantastic profits being made now and in the future are and will be made by companies that are the most adept at managing their brands in the minds of consumers while producing their products cost-effectively in offshore destinations--thus maximizing both ends.  Both activities require competency to be successful, and companies are generally better in one of these activities.  To be successful in the other, they either acquire the talent or outsource the task.

What are you good at?  Should/Can you acquire or outsource the other?      
 

Communicating with Chinese Manufacturers: Who am I talking to?

It's no secret that communication with overseas manufacturers can be challenging.  Given the number of businesses and individuals routinely trying to contact Chinese manufacturers via Alibaba.com and other internet sources, many are quick to find at the very outset that communication is going to be a much slower and more difficult process than they initially thought.  Invariably, our clients come to us having already tried to contact and work with manufacturers directly, with little progress and lots of frustration.  So who are the people on the other end of the email at the factory responding to all of these initial inquiries? 

I recently came across an interesting post entitled, A Question for All Chinese Members of the Forums, on one of Alibaba.com's forums.  Upon noticing the frequency with which Chinese members were asking basic questions, this individual posed an open question to the forum, asking these Chinese members to explain who they were, what they did, and how much training they received from their companies to do their jobs.  Their replies, the most interesting of which I've posted below, paint a fairly accurate picture of the lack of training these young, entry-level sales staff are typically given, and why great patience and strong communication skills on our part are necessary to get accurate information.  Don't take it from me.  Hear it from the source:

I work in a factory. I'm twenty- three years old. It's my first job. I graduated from university this June. I've worked here for more than four months ( I started my work this April.)

I'm the only one who sell our products to the international market.
I'm the only one who know how to write, read and speak English here.

At first, I can't quote myself, so everytime when I got an enquiry, I need to let my boss tell me the unit prices. Now, I can quote myself.

I need to learn by myself most of the time.
There are lots of professional English words I didn't know, but no one can tell me, I need to search a lot and learn from the Internet --- That's why I always turn to Baidu for help now. I found it's very useful to me!

A second response:

that's great.
but there are too many factories here,and many many factories have no ability to train their workers. they are only samll factories.
and they aims are to earn money .
and i also ever heard,the boss in many many factories only have the lower knowledge,they can't know what need for international trade,they also don't want to pay more money to train you.

always, in many many factories,they just start do foreign trade,they have no right to export and import,they always need help from Imp.&Exp. company.they only have one sales for foreign trade.

when i started my first work,the factory also only me to do foreign trade,no one can tell me how to do.i can't get help from any where.
i had to read more books and check more with customers.luckily,the customers i met were very kind,mostly they would explain to me carefully.i need to say,i learnt much knowledge from my customers.i need thanks them. and when i started foreign trade,i faced many many difficults.but i have come over.

now i have 1 year experience,i feel nice.
i believe i can do work much better.

And finally:

This is a good question..and relates to other issues...LIKE:
How often do "International Sales" people change jobs? I feel the turnover is high.

Let us consder that we are talking about young, bright university graduates whose big advantage is good knowledge of English...Not there skills in Sales or Trade.

Those who develop and interest may move on quickly to "bigger and better" things. Others may get frustrated since they are not always really part of the company, but serve as contact people with customers. So their opinions about customer relations may not be properly respected.

This turnover can become a serious problem as customers need ongoing contact to solve quality issues, develop specifications, and prepare foreign language manuals, art work etc.

This last post emphasizes the point that it's not just a lack of training contributing to the communication difficulty, but employee retention as well.  It's not uncommon for many young Chinese employees to bounce from job to job, making it difficult for them to truly learn how to sell a company's products and communicate effectively with customers.  The skilled labor shortage in China is serious and retaining good employees is very difficult for many Chinese firms.  It's a Catch 22 situation: why would a factory owner want to pay to train a new employee when he is fairly certain that employee will leave within the year anyways? 

Raising Your Supplier's Prices in China: Not the Answer You're Looking For

So much to chew on lately in the blogosphere and media regarding China's quality, prices, liability, etc.  There is a lot of noise out there regarding "who" is to blame and "why".

Paul Midler, of TheChinaGame blog, recently wrote a post entitled The New Bugaboo: Low Prices.  Midler presents some good counter-arguments to those out there that claim US businesses' chase for low prices is the true culprit in these quality fiascos. Midler's general points are:

A) US companies cannot fully control their suppliers.  Chinese suppliers, just like any person, are in control of their own actions and decisions.  Consider the analogy he uses:

Consider yourself in this situation: You ask someone to run to the store to buy you a candy bar, and you give him more cash than necessary. Keep the change, you tell him. The guy gets to the store and decides to shoplift the candy bar instead of paying for it. Are you responsible for this person’s unethical actions?

B) Putting the blame on the abstract cause of "price pressures" to excuse Chinese suppliers' failure to live up to certain standards in environment, labor, and quality criteria simply passes the buck in terms of responsibility.

C) Simply paying the suppliers more money to solve these problems is a ridiculous notion.  If actually implemented, many Chinese suppliers would be laughing all the way to the bank with no intention of actually improving conditions to the level that we'd like.  Unless we were of course to pay more next year, right?  Paul offers another good analogy:

First, if you give more money to a supplier who has behaved unethically, isn’t that sending him the wrong message? What would these people say about a CFO caught embezzling corporate funds? “Well, he must have taken the money because he needed it. Let’s give the guy a raise and see if the problem clears up on its own.”

I agree with Mr. Midler.  Price is the reason companies approach low-cost countries, like China, with manufacturing in the first place.  It isn't the Sichuan hotpot dinner (although I do find myself wandering out to restaurants specifically for this reason).  Simply paying more for a given product will probably do nothing to fix the issue.  Consider this little anecdote I wrote a while ago about surgeons masks being offered at a factory I toured in Shenzhen.  U.S. companies wanted surgeons masks available to factory workers.  The factory begrudgingly purchased them.  Half the workers didn't want to wear them. 

In another case, an associate of mine with a U.S. automotive tool sourcing company a few years back, got burned when he offered laptop computers to some employees.  Being new to China and a bit naive, he thought he would give laptop computers to three employees in their newly formed Changzhou office.  Supposedly, the workers would be delighted and their productivity would improve.  The employees were gone, laptops in tow, in a matter of a few weeks. 

These are only two, small anecdotes.  But they demonstrate a point.  It goes far beyond simply offering a piece of equipment, clothing, or raising the price.

Small Business Administration Seminar: Basics of Manufacturing Your Product Overseas - Next Week!

The Small Business Administration has asked me to lead a seminar next week at their San Francisco offices on the subject of "The Basics of Manufacturing Your Product Overseas".   It should be a lot of fun because I've outlawed the use of bullet points in our company presentations AND we should have ample time for Q&A.  Hope to see you there.

The Basics of Manufacturing Your Product Overseas
9/10
6:00 PM – 8:30 PM
Competing in the Global Economy today requires access to global manufacturing resources to produce and sell your product on the market.   Learn the basics of manufacturing overseas, the steps and decisions involved, the players, and critical insights into making your operations a success.  Find out how to obtain accurate production quotes from qualified vendors, manage the communication process, protect your intellectual property, and assure high-quality product. If you are a business with products on the market, currently developing products or a product line, or an entrepreneur starting with a product idea, this seminar will prepare you for the next step.

The Small Business Administration offers a variety of classes for business owners in our Entrepreneur Center, located at 455 Market St., 6th Floor in downtown San Francisco.

To register for classes, go to: http://www.acteva.com/go/sba

$300 socks to go with your $300 jeans?

$300 socks.  No way.  But I wonder how many people would have shaken their heads 30 years ago at the prospect of $300 jeans.  I still shake my head.  But they're around and people pay for them.  Sure--they offer much better quality material and craftsmanship--but there's an intangible value, created out of thin air, that for some people is real.  The value?  Identity?  A meaningful experience? 

This last issue of Fast Company magazine has served up an interesting article on this, proposing that $300 socks may indeed be inevitable.  Dan and Chip Heath, authors of Made to Stick, have a routine column going in the magazine, and their last article regarding "The Inevitability of $300 Socks", caught my attention.  They're not the first to observe and comment on a growing trend of niche markets, connoisseurship, and customization.  Seth Godin has been heralding the idea for some time that "Small is the New Big".  The number of microbreweries of beer and coffee have risen sharply in the last decade (some of the products that I've been personally paying attention to).  In addition, as the Heaths point out, jeans, to the chagrin of many a teenage parent, have gone from a $30 run-of-the-mill product to $300 a pair.

Their claim?  The concept of luxury is evolving from being less focused on status and more centered around personal pleasure and self-expression.  The article quotes Zain Raj, executive director of the ad agency Euro RSCG, Chicago, who looks back at the 1980's and points out that "You wore $200 pants with an $80 shirt and a $65 tie.  There was a relative order to the world in terms of value.  Today, it's all personal".  Today, the Heath's point out that it's not uncommon to see people wear $300 jeans with $8 T-shirts or people who have a hard time affording their rent, pay for $15 a pound for premium coffee. 

Their point?  "Luxury goods are no longer a sign of status; they're the mark of connoisseurship".  The difference between a product being run-of-the-mill with little profit margin, to a product that can command a premium from a group of connoisseurs, is the ideas behind them. 

This idea goes beyond just the concept of a product for a niche market.  It's more about an idea that lends itself to a consumer's identity and experience.  Think Iphone.  There are the people who paid $500 for an Iphone because they felt the functionality would improve their lives.  There are those that believed that something about holding and using an Iphone in public conveyed specific messages of status to others.  But I think the people I saw camped outside in front of the Apple store the night before the release--found more value packed into the $500 Iphone than either of these two groups.  They got an interactive experience with other people camped on the sidewalk who felt the same way.   

It's similar to when one guy with a Red Sox hat sees another guy across the bar with a Red Sox jersey--and gives the "yeah, man" nod of approval.  Interacting with others who feel the same way is affirming, offering a sense of belonging and identity.  An Iphone sidewalk camper can look at the guy or girl shivering on the pavement next to them and say "Your're a tech geek.  I'm a tech geek.  Let's revel together in our tech geekness".  I'm not knocking it, because I do the same thing in other ways.  I bought the $30 concert t-shirt at a Page & Plant (Jimmy Page and Robert Plant of Led Zeppelin) reunion concert.  I show this to other Led Zeppelin fans and I am instantly elevated to "cool" status.  I connect with a fellow fan.  All the while, I am reminded of how great the concert was.  And the experience of the t-shirt keeps on giving and that's why I paid $30 for it.  If I never went to the concert and saw it on a rack in a store--no way. 

So is it that crazy to think that $300 socks might someday do this for a group of sock connoisseurs? 

One of the great things about this phenomenon, is that it opens the door for so many small businesses and entrepreneurs, who want or are willing to cater to a specific market.  Distribution may be more manageable and building a brand and grabbing mindshare of the customers may be just as easy or easier for an unknown company as it is for an established company.  In fact, it may be much easier for a small company or start-up to do this because they can often achieve a closeness with their customer and maintain an air of authenticity more easily than a larger, more unwieldy company.  Someone did it with pants--watches, chocolate, beer, coffee, t-shirts, bags, and the list goes on.  Socks?  With the right message, communication, and a receptive audience, the possibilities are endless.