by Charles Orton-Jones - Thursday, 30th August 2007

Justin Edison’s got a theory. “The problem with China is that it’s bloody far away. And they speak Chinese.” And it gets worse. As the founder of Alto Clothing, a retailer for tall men, Edison’s noticed China has issues with quotas, red tape, copyright theft and quality control. “My first attempt to have trousers made out there ended in disaster,” he recalls. “The factory sent me a sample that was perfect. But when they sent the main batch the quality plummeted. They had clearly been produced by someone else. I complained, got a discount, and am now looking for a new partner.” But for all these negatives, there is one outstanding positive. “I’ll keep going because the savings out there are magnificent.”

And that’s the equation. Sourcing goods from China isn’t easy. It can be a total nightmare. But no other country on earth can compete on quality and price. Which is why thousands of entrepreneurs are looking to order a Chinese takeaway. Should you join them? To help you decide, we’ve talked to seven old hands to glean their tips and tricks.

Those with flying phobias (and tight budgets) will be relieved to hear you don’t have to visit China to buy Chinese. Anna Scholz is a fashion designer whose collections are made in Shanghai. She relies on Fuhrmeister and Co, a German outsourcing agent, to oversee production and do all the paperwork on her behalf. “I could try and deal with the factories direct. But I don’t speak Chinese, and you need to be out there to make sure nothing goes wrong. Fuhrmeister take care of absolutely everything, so I don’t mind the extra money they cost me.”

Her Chinese adventure started almost by accident. “A friend came back from China with a beautiful cashmere jumper. He was friends with an outsourcer there who had given him the jumper, so I said that if his contact came to London we should have lunch. When they visited we went out and I asked about the possibility of making my clothing in China. All very informal. We struck a deal, and that was four years ago. I’ve had a wonderful experience doing it.”

READY TO ORDER? HOW TO GET STARTED Step one is always the China-Britain Business Council. This government-funded organisation is a one-stop shop for advice. Their resident experts can advise on import, export, out-sourcing, legal and political issues. Basic advice is free. Longer consultations are billed. The CBBC puts on a range of events, including networking lunches, training seminars and business briefing days. Not all are in London. The DTI’s export arm is UK Trade and Invest. In addition to advice, UKTI disburses grants for would-be exporters, funding trips to overseas trade shows and running frequent business tours around China.   Trade fairs are a great place to meet manufacturers and middlemen. The KenFair Asia Expo at the Olympia Grand is in February each year, attracting over 650 attendees (www.kenfair.com). Chinalink is a Liverpool-based agency that works with the British Chambers of Commerce to help businesses trade with China. It organises five or six trade missions a year, hosts conferences, and provides invaluable information for importers: www.chinalink.org Ringing the Chinese Embassy can be a frustrating process, but David Moore, a middleman for more than a decade, says he procured a CD that listed every approved manufacturer in China from the embassy. Commercial websites can help here, too. www.made-inchina. com is a directory of Chinese manufacturers, and a quick search on the web nets lots of leads and sources. Finally, closer to home, check out HSBC’s “Guanxi Lunches”. These seminars bring together exporters, traders, politicians and entrepreneurs from the UK and China. Taking place in London, Manchester and Glasgow, attendees get instant access to some of the best-connected people in China. Next lunch is scheduled for this autumn. Contact Stuart Grant on 020 7992 1190 or ukcorporatebanking@hsbc.com.

Scholz says her biggest problem is quality control. “You have to be anally clear about what you want, or the Chinese will allow their own creativity to creep in. We send out sample boxes to them. We included fabric with sequins glued down, colour charts and detailed written instructions. When they make the clothing they email me photos so I can be sure they’ve got it right. Nothing is left to chance.”

 

The result is hugely reduced cost, and access to craftsmanship not available anywhere else. “Cashmere is 50 per cent cheaper there. Sewing costs are a third of UK cost. And they have skills that don’t exist here. I can’t imagine asking someone in Britain to spend three days embroidering a single garment. They wouldn’t do it!”

Scholz has visited her Chinese manufacturers twice. But it is possible to outsource without visiting at all.

Calypso Rose runs Clippykit, a maker of handbags and lampshades. She found her Chinese partner at a London trade fair that specialises in China. “We are based in Earl’s Court, and visited the KenFair exhibition at Olympia. There are hundreds of manufacturers and middlemen with stands looking for business. I found a middleman who said he could find someone to make lampshades to my design for an attractive price. We also talked direct to a manufacturer who makes stickers. We’ve been using both for a year and our experience has been excellent.”

Visit in person
For large-scale production, there is no alternative but to get on a plane and do the outsourcing on location – as Sprue Aegis well know. The smokedetector maker was founded in 2000 with the intention of using outsourcing to undercut existing players. MD Graham Whitworth explains how he found a supplier. “We started out by using the internet to see who made detectors. We composed a long-list of ten. Then we flew out for a week, to Shenzhen, to visit them all. The ethical status of each manufacturer was as important as the quality. The workers sleep in company dormitories, and we made sure we examined these. If the accommodation wasn’t up to scratch, the plant was vetoed. By the end we had a short list of three manufacturers who met all our criteria.

“Back in England we wrote to our short-list and submitted a formal request for quotation. This covered everything from quality standards to pricing. From the answers we received, we selected one manufacturer. They were then asked to do a pre-production set-up of their plant. We visited in person to check it was in order and to iron out any wrinkles – there are always a few. The final step is to go back with independent production standards inspectors and do a final sign-off. Only then can production start.”

This procedure took Sprue Aegis nine months and three trips to complete. To ensure that standards don’t slip, the firm employs a Hong Kong agency to inspect the plants and check goods before they are shipped. “You can’t do business without someone on the ground,” warns Whitworth. “Our agents check every batch of products before they ship. If a single sample is out of order we reject the entire load.” If the agents give the thumbs up, the detectors are shipped by logistics giant Excel straight to Sprue Aegis’s Coventry headquarters. “Excel take care of all the Chinese and British paperwork, so their service is well worth the money.”

Whitworth says it is possible to source goods in Hong Kong, where many manufacturers have their own middlemen, but says this process, whilst safer, results in costs “300 per cent greater than buying at source”.

Warning: red tape and rip-offs
Something money can’t buy in China is copyright protection. The laws are barely enforced (despite the occasional bootlegger getting a bullet in the back of the head), and hi-tech outsourcers live in fear of being ripped off. RadioScape is one of those firms with knocking knees. It makes digital radio receivers, and has a 40 per cent global market share. “IP protection is our number one concern,” says MD Phil Smith. “We tackle the problem by only using firms listed in the US, Hong Kong or Singapore. That way we know they are reputable and will protect our designs.”

OR MAYBE AN INDIAN INSTEAD? “When we said we wanted to find a manufacturer in India rather than China we were told we were insane. ‘It will be rubbish’, everyone said.” Shelley-Anne Salisbury is the co-inventor of hair clip product Linziclip, and she’s an evangelist for Indian contractors. “We’ve been manufacturing in Mumbai for two years and our experience has been fantastic. In fact, on my last visit I noticed lots of Chinese there. I asked my contacts what was going on and he explained that they were there to learn from the Indians, whom they regarded as more advanced.”   India has a string of advantages. “Their legal system is similar to Britain’s. As a former lawyer I am very happy talking to lawyers out there. The copyright protection is much better. And I’d say the quality and efficiency is higher.” One word of warning, though: “India can be a bit mañana. In China there may be delays, but they’ll respond as quickly as possible. In India you can be talking about weeks before things get moving again.”

Sprue Aegis relies on international market restrictions to protect its IP. “We chose the smoke detector market because of the tight controls on vendors. A Chinese manufacturer can’t simply sell to the UK. They need accreditation, so we have a degree of protection.” In the fashion industry there are no barriers. Scholz laments, “I have heard my designs are being sold in Hong Kong. There’s nothing I can do – I wouldn’t dream of taking legal action. All you can do is move faster than the people ripping you off. Keep innovating.” The other advantage of finding trustworthy partners is that they will offer better payment terms. “At first they’ll demand 100 per cent up front,” says Whitworth. “When they know that you are reliable they will accept maybe 30 per cent up front.” “In China, relationships are everything,” he adds.

This emphasis on relationships is why distance purchasing is so problematic. The Chinese use the term guanxi to describe personal alliances, and it’s a concept that dominates business life there. Peter Bennett runs London Translations, and he’s just shaken hands on a deal with a Chinese partner. It’s a classic outsourcing model, common in the translating industry: he emails documents in English and gets them back in Chinese. But he knew he wouldn’t be able to broker such a deal without generating guanxi.

“I started my hunt for a partner by getting on a plane to Beijing. I took a translator with me, as English literacy is incredibly low there. By using the internet I made a list of the reputable firms. The problem is that China is a bit like the wild west. There is no Association of Translation Companies, like in the UK. I visited three firms, none of whom impressed me. The fourth looked rather better. “It took me three visits to the firm to forge an agreement. My advice is, on the first visit, don’t even mention a possible deal. Just find out what they do. Tell them what you do. Get to know them and build your guanxi. Presents are a great way to improve your relationship. Nothing expensive though – it isn’t Japan. I took Harrods tea.”

When you’ve established strong guanxi, obstacles in your path will be removed. Government approval can be hastened, planning objections lifted, and your partners will regard your commercial interests as their own. Doors start to open. London Translations is now acting as a consultant for Chinese firms looking to enter the UK. As Bennett puts it: “In China there is no substitute for spending time with your partners face-to-face, getting to know each other personally.”

For those who can’t make the trip, the only option is to build guanxi through regular trading. As Anna Scholz has found, “After four years of partnership my manufacturers really understand my business. My payment terms are highly favourable, and I can do things with them I couldn’t dream of doing in the UK.” As takeaways go, it couldn’t get much tastier.

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