A blog for Asian furniture industry professionals offering invaluable insights, comments and ramblings about China business and importing home furnishings from China, with the occasional sidetrack into “life in China related topics.”
After returning from the Chinese new year, its quickly becoming apparent that this year, the hottest topics being discussed by business owners in furniture manufacturing circles are:
How many of your workers returned back to work after this year’s holiday?
How much later did they return from their hometowns?
How much of an increase are paying them this year as opposed to last year?
In fact, its become almost a greeting of sorts, replacing “hello” or “have you eaten yet” (a common greeting with Beijing folk). Seems every business owner is both concerned about finding workers and amazed at the salaries unskilled / uneducated laborers are now demanding. This includes their willingness to simply “walk” should you not agree to their salary requirements. A few years back, entry level office workers were on average paid more then manual laborers. Currently the reverse has now occured with a master lacquerer or experienced carpenter demanding sometimes twice as much as back-office staff are paid.
Having been both involved in the past with furniture sourcing and buying, and more recently operating a retail furniture store and factory (where I now must sell to those same types of furniture buyers), I suppose I can say I truly understand both perspectives. Though I must confess, that for the first time being the supplier, is an enormous eye opening experience – in particular, pertaining to some of the silly things us furniture buyers say and do. And more so, just how uneducated and naive many of us are, when it comes to the environment we are operating in.
Case in point:
This afternoon, the neighbor from the small store next to ours rushes in, asking if we could assist her in translating for an overseas buyer who stopped in unexpectedly to check on the progress of his order. In the spirit of “good relations with the neighbors” I agree (all the while choking back the idea that I should either a) tell the customer in English, that that suppliers product is low quality/low cost garbage and he should just come visit us or b) tell her I am happy to translate for a small fee of course ). Having stopped by without his local buying agent who would normally translate for him, he’s about as helpless as she is. I introduce myself and explain he should just explain the issue and I will translate it to her.
First Issue: Buyer stopped by yesterday and requested some changes to be made on the screen panels he has just ordered. Because there are more then one, he cannot determine whichone the changes have been made to. Quick translation and problem solved (its the one on the far right).
Second Issue: Apparently the carvings on the screen have not been smoothly sanded enough – in other words “still not up to his standard.”
The look on his face tells me he’s not happy and by now starting to feel a little like he’s being ripped off. He paid a deposit, gave instructions and now the supplier is not delivering. “Whats wrong with these people?!?! He is having trouble comprehending why they won’t just “do a good job.” Now I have been in this situation myself many times before. The look on the vendors face tells me a similar story. “We gave an excellent price, we held the product for him (even though we could easily sell it to another buyer) and we did our best to make the changes he requested.
Its almost always a same/similar situation:
Buyer:
Vendor
Trying to achieve a certain standard in the product (preferably even a better standard) and within their budget which they believe they have communicated clearly to the supplier (and at the same time, assuming that the supplier of course understands what they are talking about). Travels to China a few times a year for buying trips. Believes they are “proficient” and experience China buyers. Worries about “over paying.”
Trying to sell a certain type of product, so that it can be paid for and shipped as quickly as possible (and assumes the buyer understands what standard they can produce at). Has never left China and in fact rarely ventures beyond their shop and factory. Has sold to foreigners before with mixed results. Worries about actually getting paid.
At first glance, the issue lies in that there is probably a huge gap in the buyers standard of quality and expectations verses what standard the supplier is actually delivering. You want white – they want black – and with a lot of pulling and tugging hopefully you’ll get gray. But is it really that simple? Does it really all boil down to just communication issues?
Taking a closer look at the carved portions of the screen I quickly realize that while they are not sanded extraordinarily well, none the less its not bad. And the carvings are quite detailed as well – carved from camphor wood too – not the most expensive wood but surely not the cheapest either. The “manufacturer side of me” suddenly kicks in and as I am subconsciously calculating the material and labor costs on these screens I ask the guy “well, how much did you pay for these?” His answer brings it all into perspective. While not a rock bottom price, his answer was nevertheless pretty close.
So lets look at the scenario again from a different perspective:
Buyer:
Vendor
Wants to pay the lowest price possible. Not willing to purchase “as is,” – in other words wants to make further changes, adjustments and refinements to a “ready to go” product. Not willing to pay for such improvements. Unable to assess if purchase price is a fair market price and assumes there is a huge margin in the product. Unable to assess if the vendor is even able (are they capable/willing to invest the time/money) to make the changes requested in the product. Selects a low quality/low margin supplier and attempts to get them to produce higher quality product at the same price point with no incentives (other then the promise of future business). Unwilling to accept delivery of the product until it meets their standard.
Needs to turnover product quickly. Would like to satisfy customers but within their abilities and budget (realistic to the price points). Needs to complete sale and ship product quickly so as not to take up floor/warehouse space. On low margin/unskilled labor products need to “keep it simple.” Unable to invest large amounts of time on smaller customers/smaller orders. Limited abilities/skill set. Unable to produce higher quality product/unable to climb up the value chain. Has already invested additional time/labor in this relatively small order but still cannot receive payment/ship order. Doing their best within reason.
Clearly the buyer is just as much at fault for this situation as is the seller. Which leads me to a few things that continue to regularly amaze me about western buyers in China:
China’s been open for business for at least 20 or more years now, and despite a zillion books, blogs, product recalls, websites, and news articles on such topics, many western buyers today seem just as ignorant about business in China as they were 20 years ago and continue to make the same mistakes (over and over again).
Many wholesaler buyers (particularly small to mid sized companies) continue to source and buy from smaller low quality/low margin suppliers typically run by workers/peasants/former farmers with no high school or college education under the assumption that the low cost of product will equate to a higher product margin.
These same wholesale buyers continue to be frustrated and surprised when their orders are shipped late, fail to pass their quality inspection standards, or incur other similar problems.
These same wholesale buyers are foolish enough to believe that a farmer in China with no high school education, who has never traveled abroad, lives in his factory and does not speak English will be able to either a) understand the buyers expectations right off or b) can learn/adjust over a short period of time to meet the buyers expectations.
These same wholesale buyers still cannot figure out why the supplier will not just “do a good job.”
Business people still believe the biggest barrier to doing business in China is the language, despite the fact that any long-term China resident will tell you that learning the language is the easiest part of living/working/doing business in China.
Unfortunately this often seems to be the case with both larger buyers and smaller importers. Though the dynamics of each situation change, the perspectives remain the same regardless of the size of the supplier and volume of the customer. As a western buyer in China here is what we MUST grasp before we can be effective buyers.
Not all products are high margin products – especially labor intensive and primarily hand made products.
Look at the quality of the product first. On a scale of one to ten, if the supplier is currently producing at a rating of three is no way he is going to be able to achieve a rating of six anytime soon. This is even more so true of you plan to still pay him a rate inline with a rating of three.
“Yes, I can do that for you,” means “I am willing to try but there is no guarantees.” It does NOT mean you can rest assured they will deliver as promised. “No problem” means there will definately be a problem.
Make sure you know if what you asking for is possible and if can realistically be done in China. Even more important is can it be done within the price point you are looking to pay.
Be realistic about what a vendor can do for you and how much of your expectations they are able to grasp. There are a large number of suppliers who were formally farmers and laborers, eventually striking out on their own. Unskilled with little to no formal education, its absolutely unrealistic (and downright foolish on our part) to assume we can effectively collaborate, with these people and/or that they are capable of relating to our needs, expectations and assumptions.
Instead of going for the “rock bottom price” try paying just a tiny bit extra next time. That might mean changing suppliers. You might be surprised at just how much this can translate into savings elsewhere.
I speak fluent Mandarin. It hasn’t gotten me much further in business and at times can even be a disadvantage (more BS thrown at me at an exponentially faster rate). What has helped is 13 years of hands on living and working on the ground in China – and that includes many mistakes made and lessons learned. Speaking with other knowledgeable “on the ground individuals,” is invaluable as is regularly reading their own experiences (lots of good blogs on this topic out there).
Abandon western mindsets – it is after all China, not New York.
By CARA ANNA, Associated Press Writer, Sat. Jan 9th 2010
A northern China port that is one of the world’s largest was facing the worst ice conditions in 30 years Saturday, and icebreaking ships were working to keep the path to it open.
Some ships were having trouble reaching the port at Tianjin the port for China’s capital, Beijing, and the third largest in the country, China Central Television said. Footage showed ships on the Bohai Gulf working to keep shipping lanes open.
About 40 people had already been saved from ships in danger from the ice, the state-run Xinhua News Agency cited maritime officials as saying.
The region has been hit by its worst winter weather in decades over the past week, including Beijing’s coldest morning in almost 40 years and its biggest snowfall since 1951.
Temperatures over the next week in Beijing are forecast to remain below freezing.
The sea ice along the coast of the Bohai Gulf was the most serious in 30 years, China National Radio reported Saturday afternoon.
China’s transport minister, Li Shenglin, urged authorities to work to prevent accidents, Xinhua reported.
In 2008, the Tianjin port was among the top 15 in the world in container handling, according to the Web site of its operator, Tianjin Port Development Holdings Ltd. The port 60 miles southeast of Beijing has a sprawling export zone designed to spur the region’s growth.
The past week of bitter cold already has hit China’s power companies, with officials ordering rotating shutdowns of hundreds of factories in central provinces to ensure sufficient power to heat homes.
The well known upholstered leather furniture manufacturer Decoro, recently closed it factory in Shenzhen, China after encountering liquidity problems. More then 2000 workers lost their jobs which lead to protests. Eventually, the local government stepped in and paid two months worth of the worker’s back salaries. Yet over the years, this was not the first time Decoro was in the headlines and the table below charts some of the larger headlines over the past few years.
When Luca Ricci sold his first batch of leather sofas in 1998 he told the North American distributor they were made in Italy”
According to news reports, factory workers at the Italian-owned, China-based company went on strike to protest an alleged attempt by management to cut pay
The newspaper reported that employees alleged that 100 security guards wielding iron bars attacked workers after a Tuesday meeting with management over layoff payments.
The 968,000-square-foot plant set to open in May joins DeCoro’s 2 million-square-foot upholstery operation in Shenzhen, China.
Leather upholstery producer DeCoro has reached an agreement with China Construction Bank to provide capital for ongoing operations.DeCoro has been experiencing difficulties due to global business conditions and reduced access to capital,
Customers of Decoro include Levitz Furniture Company, Wickes Furniture,Jennifer Convertibles, Z-Gallerie, BEJ Wholesale and many others. Decoro was billed as “revolutionizing the industry” with quality Italian leather upholstered furniture being made in China and sold abroad for comparatively low prices. Note that both Levitz Furniture and Wickes Furniture are now out of business.
“Corso also indicated that DeCoro founder Luca Ricci, plans to reopen with a new factory in the near future, but had no further details as to location, size, capacity, and whether it will operate under DeCoro or another name. Ricci had not responded to an e-mail by publication time.”
For companies already faced with rising costs, tightening labor laws, and reduced government incentives, you have to wonder – is Decor fleeing to Vietnam? Brazil? (Decoro already has two factories in Brazil).
Experience of Investing in China
There is quite an interesting article on a Chinese furniture industry website www.365f.com about Decoro and its story, which I will reprint here (Chinese websites are not know for maintaining links, and I would not surprised if the article disappears due to poor site management). The author appears to be a Decoro employee. Its not clear when the article is written. Very interesting perspective….
Introduction
Investing in China, like in any other country, is not easy. There are many in which a company can invest in a country, all have positive and negative aspects, and there are always successful companies or failures.
Today I am presenting you the example of DeCoro, the way that Luca Ricci decided to operate in China, the developments of it and, from my personal point of view as worker in DeCoro, the history of this incredible company.
The sotry of DeCoro
As for many privately held company, the history of DeCoro is also the history of its President and founder.
Business idea of Luca Ricci
Luca Ricci has grown up and worked several years in his father factory in Italy, the name is Tre Erre. Tre Erre is a producer of High End sofas, producing mostly for Roche Boibois, a very high-end worldwide chain, of which Tre Erre was the biggest supplier. Luca has been President of Tre Erre for 3 years before creating DeCoro. During these years I had the brilliant idea and vision of understanding that the future of mass-market sofa manufacturing was moving out of Italy. So he looked for other countries where to invest and creste a new company. The strategic idea being that was of saving costs on manpower but invest in the quality of the materials, that in a mass-market sofa are among the most important thing.
Opportunity in China and the beginning of DeCoro
Luca was in informed at the beginning of 1997, that there was a group of Hong Kong investors, owing a small sofa manufacturing company in China, willing to sell 51% of the company to a foreign investor.
Luca together with other Italian people immediately went in China to evaluate the possibility and then Luca bought 51% of this existing company.
So DeCoro was born. But it was not an easy start. The existing company was a factory of around 100 workers, disorganized and with little stable business. First step was to send over a team of production managers, designers and prototypists to start creating appropriate models, develop them and teach the existing work force how to produce quality sofas.
It was necessary to recruit more workers, establish production procedures, organize different departments, and set up everything. At the October 1997 High Point Furniture Market was presented the first collection, but is only after the April 1998 High point Furniture Market the DeCoro receive the first order. 　　During both Markets Morty Seamans, owner and President of, at that time, a rising furniture Retailer, Rooms to Go, now the biggest furniture retail chain in USA, visited DeCoro showroom. Rooms to Go became the first customer of DeCoro and it has been since that first order, the biggest customer for us. Then other big retail groups started to buy and the company had sales of US$ 11 million in 1998.
Full ownership
But in that period started some management problems with the Hong Kongese parthers. They aimed to have short-term business plans and to make quick money. Luca Ricci wanted Decoro to become a leading manufacturer of upholstered sofas. He and the Italian Management had long-term view, keep producing quality sofas, increases capacity, establish durable relationship with its customers, and establish a worldwide sales network, with offices and personnel working directly for the company. These ideas of course had to be supported by investments and hard work.
Was heading home from a late night at the office, when the taxi driver keys me in on what just occurred. Surprisingly the Chinese media has said little even though its all over the news elsewhere. A friend texts me to tell me she heard about it from her friend in Germany who knew before her. In a strange way, this all symbolizes the conflicts, clashes and paradoxes which occur in China today and speaks to the lessons the west is yet to learn about China. Yes, you can rush into upgrade the hardware and build luxury six star hotels. But unless the software is upgraded as well, things can just as easily go up in smoke (literally and metaphorically). And quickly too. China may have Starbucks, but make no mistake – this is not Kansas and much lays beneath appearances.
On a side note, about a year and a half The Mandarin Oriental contacted us for assistance in setting up a gift shop in the hotel. While the German manager was pleasant and easy the deal with, the Malaysia gentleman we were dealing with was frankly a real pain in the butt to deal with (besides wasting our time). So… maybe it was Karma? Glad it was not our product that went up in flames…
I will be curious to see what the reported cause of this fire is but regardless of what’s reported I would guess there is a 99.9% chance this is fireworks related. China may have 5000+ years of continuous history (and even invented fireworks) yet they STILL have not figured out the obvious: that allowing thousands of uncontrolled, unsupervised, commercial standard fireworks (IE Illegal elsewhere) to be set off simultaneously across the country, in crowded spaces by individuals with no safety training (some with no education whatsoever) is a bad idea. Talk about growing pains… (For both China and the Mandarin Oriental)
On the last day of the holiday and fresh into the new year, some might see this as a very bad omen.
). Having stopped by without his local buying agent who would normally translate for him, he’s about as helpless as she is. I introduce myself and explain he should just explain the issue and I will translate it to her.
