Over the last few months, SDSI has participated in multiple discussions on doing business in China. Many companies, start-ups in particular, seem to believe that as everyone else is doing it, they too should be there sourcing their materials and manufacturing their products as well. The perception is that it is less expensive and easier, but we are not 100 percent convinced this is true. SDSI is assembling a panel of experts to discuss this topic in greater detail. However, with their insight and information being so valuable, here are a few key tips to share now.
1) Do you need a Business agent or a Developer agent? According to Bob Rief, COO of Boardworks and previously with Nike Golf and Sanuk, knowing the difference between these two is extremely important. A business agent coordinates business relationships between your organization and the factory and ensures products are shipped.
A significant amount of trust must be placed in the business agent and that person has to have the right connections. The developer agent can be an employee and actually work at a factory. Rief will present a case study on Secrets of success and pitfalls to avoid when manufacturing in Asia.
2) Do you have clear expectations? According to Joshua Saltman, Designer at Resource Creative, companies need to be very clear about expectations when it comes to manufacturing. The most common is that China is the place to go because the costs to manufacture are less. However, many people have not been successful because they do not consider all the other costs involved such as expenses of ocean freight and duty, or the costs and time for staff to spend overseas and to coordinate the business programs.
The actual price of a two week trip with airfare can cost around $8,000. Multiply that by 12 times a year, factor in the time for travel and how much they are out of the office and expenses can go through the roof. It is imperative that companies understand all the factors. Saltman will present more on Assessing China Business: Opportunities and Aggravations.
3) Where in China should you set up shop? Another key consdieration is where the factories are located. Saltman, who has been doing business in China for 30 years, stresses that you must properly vet the facilities. Quesitons to consider include – who else is doing business in the area? What service providers exist and what is their reputation within the industry? What is the technical training of the facility staff? How close are they to the ports and/or what is the access to the ports? Is there support from local authorities?? Don’t overlook these important factors.
4) Is your product or technology protected? One of the biggest misconceptions is that United States intellectual property, such as U.S. patents and trademarks, are recognized in China. According to Kathleen Pasulka-Brown, Partner at Procopio, companies need to obtain formal protection for IP in China by filing patent and trademark applications.
Although U.S. copyright certificates of registration may be recognized in China, it is best to file for copyright protection directly in China as well. Without this formal protection, in most cases, it is not possible to take any action against an infringement. In addition, cease-and-desist letters, have little or no power without having formal protection. Pasulka-Brown will present on Intellectual property legal tips in setting up your business internationally.
5) Have you done your due diligence on your partners? In addition, Pasulka-Brown cautions companies to thoroughly check out potential partners including manufacturers, distributors, and agents. Business practices in China are very different from the US, and trust is earned in an entirely differently manner. With US Protection not being enforceable, it is possible for a factory owner to take the plan for your skateboard, sell it to another factory, manufacture and then export it. Companies must be careful when it comes to trade secrets as it only takes one employee to take your information and go to another factory because they know that there’s a demand for those products.
6) Do you have an understanding of the Chinese Culture? The Chinese are not Westerners and one very important aspect to always keep in mind is that the social connections, such as those that the United States has in Europe, South America, Australia and others are extremely rare in China. According to Glenn Brumage, Director of Business Development for Wabsono International, Ambassador of Action Sports for China’s People to People Exchange 2012 and Vice President of the International Association of Skateboard Companies, the Chinese work very differently and their business practices reflect these differences.
Successful companies understand these thought processes, practices and are able to give up their Western thinking to some degree. Companies can keep their brand’s DNA and business principles, but you must be willing to adjust what you’re doing. Brumage also adds, “You have to give up some of the preconceived notions that you think are right about doing business to be able to work in China. You can’t move forward without accepting that first.” Brumage will present on How to get your brand into the Chinese Markets.
Please join SDSI on September 18 at our Chalk Talk Workshop 18: Manufacturing and Sourcing Overseas where the above experts will provide additional information and answer your questions. . For more information and to register, please go to https://www.cvent.com/events/sdsi-chalk-talk-sourcing-and-manufacturing-internationally/event-summary-b2d38fc56d9e4a37b6b4494674938282.aspx.
For more information on SDSI programs and events, visit our website. For information on becoming an SDSI member, contact me at lfreedman@connect.org. In addition, we invite you to follow us on Facebook, Twitter and LinkedIn.
