China: Navigating the New Frontier
By Alice Tanghe, ConnectorSupplier.com

When I first met Joseph Likens (via email, which is how I meet most of you), he was the director of global supplier management for contract manufacturer, Sanmina-SCI. He left that position in 2005, saw a need for sourcing quality suppliers in China to the electronics industry, and is presently trying to satisfy that need for many manufacturers. Synergetic Sourcing is his company.

About a month ago, I received some information from another China sourcing company, François Frères. Obviously, there is some French influence in the company, so I contacted them to get a different perspective. Christopher Memet is the owner and has been in business for 10 years.

I felt that all of us could benefit from their experiences in this new frontier, so I asked them to share some tales of success, and woe. Both Christopher and Joseph were very candid in their responses, yet have the utmost respect for the challenges that the Chinese are having while moving through this new manufacturing revolution. Let’s get started.

Joseph Likens: Let's face it—most companies are not doing their homework on the front end, and they are not doing routine follow-ups with their supply base in low-cost regions (especially China). Most clients throw their BOMs across to the supplier and run; hoping to rake in 25 to 30 percent cost savings.... not thinking of the total cost of ownership (TCO).

I recently spoke to a client who reverse-engineered a product that a Chinese supplier was building for them and found that less than one percent of the AVL/BOM was actually on the finished product. He is currently spending significant dollars on field failures—a huge bone pile, suffering with unhappy clients, and with no way to recover.

There are more and more of these stories coming up all the time—Fisher Price toys, tires, dog food, Thomas the Train, and food grade non-woven cloth embedded with bugs.

So where does the small- to medium-sized guy go to straighten this out? Or the big guy who has killed his supply chain group and is relying on CMs? Me and my team.

CS.com: What brought you to the point of starting Synergetic Sourcing and François Frères?

Joseph Likens, Synergetic Sourcing: Synergetic Sourcing was started with a realization that not all organizations have the resources to develop the infrastructure needed to compete in today’s rapidly globalizing markets.

Organizations recognize their success is directly linked to the quality of their supply chain, but many need a little help, and we are here to fill a void. We bring our clients solutions that they can use today to become and stay competitive, and allow them to focus on their core competencies.

Christopher Memet, François Frères: I came to China in 1996. Worked as a representative for a French company. I was in charge of starting a small factory in Beidaihe, near Beijing. The winter was terrible; I was the only foreigner there. A tough time. But I met my wife and fell in love with China.

We created François Frères and worked a lot in consulting and trading. But very quickly, we found out that the electronics industry was where we were the most needed. And we focused on serving customers in the electronics industry. From quality control to parts sourcing.

CS.com: What are the (five or more) greatest hurdles of doing business in China?

Joseph Likens, Synergetic Sourcing: Some common hurdles of doing business in China are cultural, language, time zone differences, length of the supply chains, trouble-shooting and problem resolution process, import and export duties and regulations, as well as intellectual property rights.

These, as well as a plethora of other potential issues, can be avoided by dedicating resources, doing your homework, making sure that all potential problems are identified, and contingency plans are developed. Essentially, nothing can be left to chance.

Christopher Memet, François Frères: The number one problem is to find the right people to hire. It  is easy to find workers for a factory job. But it is very difficult to find people able to deal with Western business culture.

The number two problem is to keep those people. As the market for high-profile people is tight, they can change jobs whenever they want. So you must keep them very busy, give them something to learn, increase salaries regularly, and have a good back-up plan.

The number three problem is also about the people working for you in general in China, inside or outside your company. They have not learned to work independently. You have to keep an eye on everything. And it is very important to implement systems and double-check control to be sure things get done the way you want.

Number 4, I would say, is about the environmental damage, the pollution, the noise, the traffic jams, etc.

Sometimes it makes you wonder if you really want to be part of it.

CS.com: Other than cost, what are the benefits of working with Chinese companies?

Joseph Likens, Synergetic Sourcing: The benefits are cost, access to China’s markets, and access to their growing talent pool.

Cost is the primary motivator for working with Chinese companies, however developing these relationships and a presence in China now may garner future access to its markets as their markets and consumers grow and mature.

Additionally, China’s talent pool has been developing depth and shifting, from a “me too” model, to more cutting-edge technologies.

Christopher Memet, François Frères: The speed. I think things are going very, very fast here. Decision, visit, sample, corrections. Everything.

Sometimes they do it too fast and make mistakes, and have to do it all over again (that would be hurdle five). 

CS.com: What should a potential client of yours consider before forming a partnership with Synergetic or François Frères?

Joseph Likens, Synergetic Sourcing: Prior to bringing in an organization such as Synergetic, a potential client should review their supply chain and see whether it is performing to their standards and giving them the results necessary to maintain customer service with a high quality, competitively priced product.

We will analyze their supply chain, identify deficiencies, and work with their team to combine and leverage ideas to create practical, customized and effective solutions.

Christopher Memet, François Frères: Customers must realize that in Dongguan only (the area where we are located, between Guandzhou and Shenzhen), there are more than 100,000 factories, so purchasers from all over the world can receive all kinds of offers and prices for the same inquiry. And everything can happen. The best and the worst. Look at Mattel (their largest supplier is just 3 km from our office).

We audit and carefully select each of our suppliers. We have selected the best 50 Chinese factories for the technical parts sourcing industry, and we are here permanently, taking care of every issue, from quotation moment to delivery. And not only do we make the purchasing safe, we make it more efficient. Thanks to our large number of customers, our total purchase volume is important when all orders are combined together.

This, and our long-term cooperation with suppliers, is giving us prices and conditions that our customers could not get if they came alone to those same factories.

CS.com: What companies would not benefit from your services?

Joseph Likens, Synergetic Sourcing: The vast majority of organizations would benefit from working with Synergetic, whether small or large, whether they manufacture in-house or outsource. Even companies with supply chain systems in place would benefit from a fresh set of eyes.

Christopher Memet, François Frères: Companies who have their own purchase office in China, and a large purchase volume with few suppliers should not need us, because those companies can audit and control factories as we do, and if they have large volume purchases with a few suppliers, they can negotiate themselves. But let’s say they need a new cable that their usual supplier cannot provide, and volume is not so important—then they should come and see us, and they could take advantage of our supplier’s network.

CS.com: Do you have any real-world anecdotes?

Joseph Likens, Synergetic Sourcing: Yes, I had a customer who had contracted a manufacturer for food-grade cloth. It was interesting in that the company performed all the right steps, but forgot just one thing…

They sampled, qualified the cloth and the supplier’s facility, and received several containers with good quality product. Then something changed, and then the quality started going downhill. Containers started showing up with cloth embedded with mosquitoes and other types of insects.

What had happened was, with the arrival of spring and summer, the mosquito netting that hangs around the windows at the manufacturing facility was never employed and the doors were left wide open.

The mosquitoes were attracted to the light, and started swarming around the production machines and embedded themselves in the cloth. The cloth was subsequently packed and sent to the company without any quality reviews.

The worst part of it was that the problem was found by the end customer.

CS.com: How did you get out of it?

Joseph Likens, Synergetic Sourcing: We took a look at this from a couple of angles. The first, to get product to their end customer, we reinitiated the relationship with their previous supplier.

It took several long months of back and forth discussions with both the supplier and the local government, but ultimately the supplier agreed to replace the cloth, and pay freight and duties on both the replacement and returned material.

Essentially, after the issue was resolved, a new strategy was developed to keep from putting “all the eggs in one basket,” utilizing both a domestic and the Chinese supplier

Christopher Memet, François Frères: The first company I worked for, in China, we had a Chinese partner. He was supposed to own 51 percent of the factory. After only two years in the project, and three months production already, I found out that the real owner of the 51 percent was the Chinese Red Army. That was a surprise. And our partner was in fact just a puppet.

CS.com: What mistakes have you made when you first entered the China market? Or, what mistakes have been diverted because of being able to help another company?

Joseph Likens, Synergetic Sourcing: I learned so much in my first years working in Asia, from the value of patience to doing your homework—before you enter the conference room.

One of my most memorable mistakes is a classic in assumption and body language

I remember having a meeting where we were working with a supplier, attempting to get better terms. I was watching the body language and thinking that things were progressing in the right direction. The guys on the other side were nodding and smiling and making utterances of agreement. Sounds like a slam-dunk right?

No, absolutely not. Nothing positive became of the meeting and it took another face-to-face to lay in place the groundwork of the project. When doing the post-mortem, I learned that their utterances and body language that I mistook for agreement, actually merely confirmed that they heard me—nothing more.

The “nod” story is a great example on how we make assumptions and the power of body language.

For a laugh try this; when someone asks you a question, nod your head and say “no” and reverse it. See what happens.

Christopher Memet, François Frères: The first mistake is to ask questions of the people. Very often you can not rely on their answers. You have to check everything yourself. And learn and know better than them. I think, that coming from a Western country, we have a tendency to rely too easily on others. It is dangerous here. Not because people want to abuse you, but just because they have their own limitations, and they can not help you as much as they want or as much as they thought. So it is necessary to be a bit paranoid.

CS.com: How do you view Chinese suppliers?

Joseph Likens, Synergetic Sourcing: I liken the indigenous Chinese suppliers to cowboys making it up as they go. They are well meaning but don’t always have enough expertise or skill to do what they agree to do.

When working in China there are distinctly different types of organizations, indigenous Chinese, and multinational. I prefer doing business with established multinationals who have imported strong, manufacturing, sourcing, quality control, and customer services, yet are able to provide great prices.

The indigenous Chinese are learning quickly and are hiring former employees from the multinationals and going into production.

CS.com: What has been the biggest surprise in the past year?

Joseph Likens, Synergetic Sourcing: Seeing a high degree of interest in moving to automation by Chinese manufacturers.

Christopher Memet, François Frères: The biggest surprise was when one of my customers, a Swiss watch brand, asked me if I could work as the model for their new TV advertisement campaign. Now, when I go to Shanghai, some people recognize me. It is a strange feeling. But that’s China. Everything is possible.

CS.com: How do you view your competition?

Joseph Likens, Synergetic Sourcing: Competition is good for the soul and every competitor has their own niche in this business. Our niche is combining strong cross-industry and cross-technical expertise and business acumens to give the customer a seamless solution.

We don’t look at a widget as a widget, but what it takes to make up that widget and all the idiosyncrasies associated with it. Let’s be frank, you can’t treat a D-sub the same way you treat a wireless communication board, or for that fact, a midrange server system.  

Christopher Memet, François Frères: I think the competition is tough, because price is the first thing purchasers have in mind. We face competition from rogue Chinese traders, up to well established Western companies. But I found that most of them lack a vision.

CS.com: What “holy grail” are your hoping to achieve?

Joseph Likens, Synergetic Sourcing: I would like to have happy and well-informed customers that understand what they are getting into. Once they decide to embark, they’ll get the best service, quality, and pricing that the market can deliver.

Christopher Memet, François Frères: We would like to be the One Window for purchasers looking for the best suppliers. We are already that today for around 100 customers, mainly in Europe. I hope in three years, we are this same Window for 1,000 customers.

If this article creates more questions about the Chinese market, or pushes you to share some of your experiences, contact me at atanghe@connectorsupplier.com.

For more information on Synergetic Sourcing, contact Joseph Likens at joseph@synergeticsourcing.com, or visit www.synergeticsourcing.com. Christopher Memet can be reached at christopher.mazet@francois-freres.com, or visit www.francois-freres.com.