The ACF China Co – Millstone Trading

10 September 2007

Funding your own competitor

Posted by Roger under: Business in China; Chinese Suppliers .

Carefully evaluating and selecting the suppliers you work with is crucial. However, the criteria in which the evaluation should be based on is critical as well. Unfortunately, this is often misconstrued or simply unclear. Assessing a supplier purely according to a western set of assumptions is akin to shooting oneself in the foot. Considerations such as quality and customer service ability are important but one must also consider the companies potential future development path and even current business accumen as well. You might be thinking” What does this have to do with my order?” In fact, it has more to do with your ability to place your next order tomorrow. More importantly, it has to do with your ability to market and sell that same order to your own customers

In China, anything goes. In fact, business here is often decribed as similar to gurilla warefare and suppliers operate in an “anything goes, dog-eat-dog world.” Professionalism, ethics, customer service and best practices are completely non-existant. This filters down into our industry in that suppliers see nothing wrong with selling to you, your competitor, your neighbor, your customer or even your customer’s customer. The worst offenders are often the largest, most “professional looking” factories. Incidently, western buyers tend to flock to these factories, under the premise that larger and more established means reliable and more professional. As a supplier grows its customers educate about what sells, buying prefferences etc and this is normally a good thing. What western buyers fail to realize is that the suppliers often views you less as a “valued customer” but rather more like an instructor who both provides profit for the business and educates them with the knowledge needed to eventually supplant/bypass you in the future. What if this same education is then used to open up a shop right next door? (Can’t go abroad? Sell directly on eBay then).

A common remark overheard from overseas buyers is they are noticing a trend of low cost, (often mainland Chinese run) shops opening up in their area. These shops are normally competing on price alone and in fact may make most of their profit on the factory-end. Sure, quality is low and the designs standard but customers may not be able to see the difference and its cheap. In the end, the market becomes flooded with low quality, low cost product and eventually bottoms out. So be a little strategic. Check on your supplier

• Do they sell the exact same products direct on eBay, at not much more then you currently pay for them.
• If they do sell online direct, ask if they will agree to not service any individual sales in your area. Can they politely refer such sales directly to you? Make the area wide enough to seem serious (such as your state or province).
• Are they wholesale only or do they have a nice showroom from which they sell wholesale to the public (at roughly the same/similar prices)?
• Try asking for an exclusivity agreement and see how they react. They will of course not agree but regardless one can learn a lot from their reaction. (If they say “no problem” and agree immediately this is also a bad sign.
• Do they have any shops or stores overseas? Do they have a friend, cousin, brother or uncle overseas in the same business.

Even if your particular supplier is not yet doing this, if they are this type, then sooner or later they will be. So many buyers fail to realize that through indescriminate buying they are indirectly funding & developing their own future competitors. Without careful consideration of the supplier’s profile both today and tomorrow, you may be investing in your own pool of future competitors.

HaoHao This

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