Prix Fixe vs. À La Carte in Asia: Which is Best for You?
March 15, 2012, USA
This month, an article titled “The End of Cheap China” was published by The Economist. For many of us, the discussion about rising labor costs in Asia is a daily occurrence as we help companies understand the true cost of ownership across a global supply chain. The premise of the article is that while wages are still on the rise, China continues to offer significant advantages to other burgeoning markets whose realities have been revealed.
“China’s supply chain is sophisticated and supple,” the article affirms. “Professor Zheng Yushen of the Cheung Kong Graduate School of Business argues that the right way to measure manufacturing competitiveness is not by comparing labour costs alone, but by comparing entire supply chains. Even if labour costs are a quarter of those in China to make a given product, the unreliability of many components may make it uneconomic to make things elsewhere.”
The advantages available to companies manufacturing and sourcing in China are at the foundation of the on-the-ground services we provide at Kyosay Global. But importers have a lot of options when it comes to supporting their offshore operations.
Whether designing and mass producing a new product or sourcing product from qualified factories, companies have the option to seek out and purchase selective and narrowly focused services to meet their immediate objectives. And Asian businesses have built up worldwide to capitalize on these service opportunities.
For example, consider the need for in-country quality control for a U.S. distributor. A Google search reveals hundreds of options for Asia-based inspection and audit companies that are available on demand. Which is the best to select?
But there is a more important issue to examine: what about all of the other services that are needed? What about the management of regulatory requirements? What about the opportunity to source new innovative designs already making their way into the market? What about the possibility of working with an engineering team to design cost out of a new product? What about consolidating container shipments to achieve additional savings?
The good news is that importers also have the option to deploy, at a fixed monthly fee, comprehensive on-the-ground teams – like Kyosay Global – that support them across a wide range of services and improve their long-term positions on speed, quality and price coming out of Asia.
It is really no different than a restaurant experience. When considering an à la carte menu, you must consider your choices carefully, making sure not to exceed your planned budget. And, while a prix fixe menu may seem to cost more upfront, you often walk away impressed by all that you got for the money.
Sourcing and Producing in China: Still a Good Idea?
November 28, 2011, USA
Many are asking this question. But while U.S. and European demand for China exports, once 40% of the nation's total, has continued to fall, overall exports were up nearly 16% in October. Thus, there is still obviously critical mass in place on a global scale to support the immediate focus on China as one of the top manufacturing nations in the world (presently #2 to the U.S.).
But is China the right place to be? And what about next year and the year after that?
At Kyosay Global, we continue to see companies who are manufacturing or sourcing in China but due to cost pressures, quality issues and challenging lead times, they are sensing the need to sharpen their sourcing and supplier management strategies. This doesn’t always mean leaving China.
For some, it is definitely time to start thinking about how to shift at least a portion of spend to other developing markets like Vietnam, Indonesia, Malaysia and Thailand, possibly even such markets as Cambodia and Bangladesh. However, we are finding that this doesn’t eliminate challenges. What it means is substituting one challenge for another. While cost may improve, communication, quality problems and added security can utilize additional resources that make the net cost improvement negligible. Much of the potential benefit lies in the type of product, the to-date experience of the market in the industry and the proper in-country management of the supply base.
For others, it may simply be time to rethink existing China strategies and consider how to better position spend with suppliers. This could mean consolidating factories to improve negotiation position and purchasing power. This could mean looking for new suppliers who offer innovative product design concepts and the ability to interface with their customers to effectively design the product for manufacturability and cost savings. This could also mean putting in place supplier agreements and heightening supplier accountability for quality and on-time performance. And the list goes on.
So, back to our original question. Is China still a good idea? As with so many critical supply chain decisions, the answer is “yes” and “no.” It simply depends on the size of the company, the industry, the level of product complexity, the minimum order quantities, the raw materials, the need for innovation and the ability to put an in-country resource in place to oversee it all on a daily basis.
At Kyosay Global, we have put China-based teams in place in the Guangdong Province (sourcing, supplier management, product development), Shanghai (sourcing, supplier management, HR/executive searches and market research) and Ningbo (supplier management and quality) to serve as our clients’ on-the-ground advocates. To find out more about our capabilities and ongoing projects, please contact us at 847.790.7500 or firstname.lastname@example.org.
A Real “Back of the Napkin” Story
July 20, 2011, Northbrook, IL
From a concept sketch on the back of a napkin to a partnership with Kyosay Global to drive the development of CAD drawings, rapid prototypes and proof of concept, component sourcing and manufacturing … yes, it does happen this way sometimes.
The real accomplishment in this type of work is being able to take our client’s vision for a new product and bring it to reality. Through the design and drawing process, new ideas and functionality come to life. It may not always be the exact original idea. But, it is through this process of true collaboration with our clients and their innovations that we can help drive the momentum to market.
One of the real advantages that we offer is a low-cost environment with exceptional engineering and design talent. For startup, small and mid-sized companies, this can mean the difference between exploring new product ideas and shelving them until there are sufficient resources to pursue them. We have seen enough great ideas die on the drawing table to know that there is value in what we have to offer.
Presently, we have been working with the innovators of a new fitness product. The concept for this piece of equipment came to us as a sketch on a piece of paper (not a napkin, but close). Our engineering teams evaluated the sketch and went to work, returning a full-scale design including a revolutionary gearing system and exceptional overall aesthetic design. We have now moved into design of the second prototype and look forward to sharing more with you in the coming months as we move this product into production.
When Manufacturing in the U.S. Makes Sense
May 17, 2011, Northbrook, IL
In dealing with small and mid-sized companies, we often see businesses facing a critical obstacle when it comes to manufacturing and sourcing in offshore markets: volumes. Almost all quotes returned by factories in Asia are returned to us with one column filled in completely: MOQ, or minimum order quantity. Prices are almost always set based on volume, and, in many cases, that volume is FCL (Full Container Load). It is really the volume that drives an offshore supplier to purchase raw materials and plan for labor resources far enough in advance that there is money to be made.
For businesses with highly specialized products in niche markets, or for new companies just getting a start, a full container load often just isn’t feasible. And, as the order quantities drop, the prices increase. At some point, there is a tipping point, and the U.S. begins to look attractive again.
Since 2000, more than five million manufacturing jobs and over 50,000 manufacturing companies have disappeared from the American landscape. However, as a firm that sees the challenges of both emerging and established companies, we see a growing opportunity for specialized, lower-volume manufacturing businesses nationwide. Thus, we have continued to develop our relationships with manufacturing, fabrication and assembly houses across North America to support our clients when an offshore option doesn’t make sense.
Over the last six months, it is a conversation we have with almost every small or mid-sized company that seeks our expertise. North America is growing in its popularity as an alternative manufacturing and assembly source for those U.S. businesses that meet a specific profile. The key to success is identifying, qualifying and managing those domestic suppliers on an ongoing basis.
Confronting the Economy With Your Supply Chain
Feb. 3, 2011, Northbrook, IL
No one would argue that the last two years have ushered in a new set of rules for succeeding on a global scale. Taking from the past to chart a course for “next” does nothing to ensure increased margins and profitability. So, for distributors and manufacturers who find themselves facing a critical year for growth, the challenge could not be more interesting.
Today, the move to critically re-evaluate and shift your supply chain is one way to make sure your business remains nimble and able to quickly respond to shifts in the market, competitor moves and the customer expectation that companies will continue to bring new products and related services to the market to meet their needs.
For some companies, there is significant opportunity to make decisions that shift the supply chain in a way to access efficiencies, savings, innovation and an immediate edge in the market. And the impact can be profound, depending upon a company’s willingness to consider change.
Recently, we have worked with companies interested in taking bold steps to remain competitive. For example, in some cases, clients have moved to consolidate suppliers and inventory in China and ship globally from Asia as part of a global inventory management system. This allowed them to reduce inventory, streamline SKUs and implement postponement strategies. And while there is a necessary investment to drive this kind of change, the return far outweighs the investment.
Rethinking the Way You Do Business in Asia
Jan. 24, 2011, Shunde, Guangdong Province
For some of our clients, Asia is a new topic. We are happy to begin the conversation with them to help them understand how to experience the benefits of these low-cost markets. However, recently, we have been working more and more with clients who are rethinking their existing Asia strategies. Why? They simply are not getting what they need from the resources they thought they had in place to represent them offshore.
For some, operating in Asia has meant relying on third-party sourcing and supplier management organizations. In this case, the lack of visibility into factory pricing and the lack of control over product quality have some companies questioning the real value of this third-party relationship.
For other larger organizations, or divisions of those organizations, operating in Asia has meant fighting for the time and resources of an internal Asia-based team that is already overcommitted to higher-priority divisions.
And while these offshore organizations my have at one time served these businesses well, the landscape continues to evolve. With these shifts comes a responsibility to maintain an infrastructure in Asia that can give them leverage in the market.
At Kyosay Global, we are partnering with clients to given them an in-country organizational structure that ensures them the benefits of an Asian supply base while maintaining visibility into pricing, control over quality issues and continued access to new product innovation.
Should Your Company Be in China
Opportunity knocks for those who go there wisely
Dec. 20, 2010, Shanghai, China
Entering the China market is not for the faint of heart … nor is it for the reckless. But many small- and medium-sized (SMS) companies who do business there find China a profitable country with whom to conduct commerce.
There are workable solutions to such perceived China market barriers as language and cultural differences, integrity of intellectual properties and the complexity of setting up distribution partners, manufacturing and agents there. Today, you can add currency appreciation and increasing labor rates to the challenges.
Many companies have gone there before you, and many of them are enjoying considerable profits from manufacturing and selling their products in China. You needn’t go this alone. Help is available to assist you with setting up contacts in China, including those with the Chinese government.
There is a good deal of feedback and information available about China that should be evaluated in a balanced way by companies considering entering the China market. An exciting opportunity in China exists for companies not doing business there yet. For example, old-line manufacturers might create a new life cycle for old products marketed in China or innovate new products designed specifically for the China market.
Whatever your time or budget, it will probably take longer and cost more than you plan, and likewise your ROI target may take longer to achieve than you expect. However, knowing where to start can be a formidable advantage when contemplating expansion into markets as foreign and mysterious as China.
Again, you needn’t reinvent the wheel. A high-level roadmap to business success in China looks like this:
- Start from strength. A flawed business won’t be improved by “going to China.”
- When you begin, know it is an investment for long-term growth.
- While tax incentives and other “advantaged” enducements can help pave the way for your company there, your business plan must stand on its own.
- Study the terrian and note the landmarks, including market dynamics, the culture and the supply chain structure.
- Make sure your China strategy is aligned with your company strategy.
Caught in Shenzhen Gridlock
Sept. 17, 2010, 10:30 a.m. China
As we sat watching a delivery truck driver force his truck down a packed street of oncoming mid-day traffic in the heart of Shenzhen, I thought, “How does anyone get anything done here?” Heavy traffic in Shenzhen does not mean a 30-minute delay; it means a two- or three-hour delay. You see, Shenzhen – the fourth largest city in Mainland China (8 million in Shenzhen proper) – is approximately three times the size of Chicago – the third-largest city in the U.S. (2.8 million in Chicago proper). With a very reliable Chinese driver and experienced Chinese colleagues guiding the way, we were able to conduct meaningful site visits at two factories in what totaled nearly 10 hours of maneuvering through Shenzhen.
There is a misconception that if two (or more) factories are located in the same city in China, it’s a no-brainer: in and out in a few hours. In a couple of days, you should be able to hit six or seven factories, right? But, in reality, what can companies really accomplish in four or five hours in a major industrial market in China? Unfortunately, for many, it is an exercise in collecting a few business cards, enjoying a pleasant meal with factory owners and staff, and shuffling schedules to squeeze in the next weeklong trip to Asia to address those issues missed on the last trip.
It’s about managing expectations. With that in mind, any company can succeed in China, India, Thailand, South Korea, Vietnam, or any other Asian economy that offers very favorable labor costs, manufacturing costs and time to market. But we cannot superimpose our U.S. or European expectations on the world’s second-largest economy. Plan your expectations in line with the infrastructure, culture and SOPs of Asia, and the challenges will drop away. The most important thing is to find those resources – whether it be a driver, translator or engineer – who take the time to educate you and assist you in making your Asia experiences worthwhile.
Off to Check A New Prototype!
Sept. 3, 2010, 7:30 a.m. China
The driver picks me up with our engineering team for the one-hour drive to the factory to review the final manufacturing prototype. Another amazing journey! On the way to the factory, we take the new highway just opening that reduces travel time from two hours to one hour. China is constantly under construction and doesn’t think small. Neither does our client. We have been working closely with them designing, testing and prototyping a new patented strength and fitness machine that has potential to reduce pain and improve daily life for millions of people around the globe.
The team is excited, and we talk about the project on the drive. The team designed the entire unit from the concept given to us by the client as a typical industrial design concept. The Kyosay team designed the structural frame, analyzed the loads and stresses on the machine, designed new electrical sensors to detect critical human reaction to the machines movements, wrote the user interface and the control software. Today we all get to see it working as one!
China has come a long way from my early days 19 years ago slogging around the Chinese country side buying furniture, textiles and low-cost home electronics. Business was all about “how many container you want.” Now, driving on this new highway with a high-speed train built right next to it is the perfect parallel to where China is going: capital goods manufacturing designed by university-trained engineers wanting to show that they too can excel in building high-end consumer and industrial products – and today will be the proof.
We pull into the factory and go through our usual greetings. The factory team is excited to show us all the work they have accomplished. The unit looks like a piece of art as we approach it. Made on state-of-the-art machine tools, robotic welding, CNC turning centers, grinders, tube benders and finished on a brand new powder coating line, the unit is stunning. We all descend on the unit and start to do our quality tests and analysis. All I can say is that I am proud of my team, the factory team and the product we have designed in partnership with our client. Our client will be very pleased with the end result. If it were not for this dedicated team and the capabilities available in China, this product may have never come to fruition in any other market at any other time.