Guest Blog: Going Direct From China?

Wednesday June 13, 2007 | Filed under:

From Dale Denham, senior vice president for ASI:

My first visit to China. Now I can go direct, but why?

For over 15 years I've heard how going direct is the biggest threat to our industry and I finally decided to see for myself why everyone is so afraid of distributors buying direct from China.

And now I’m scared. But not of what going direct does to do our industry, but why this fear continues after all these years and with so many smart people. Don't get me wrong, going direct is a threat, but it is overrated based on my recent experience traveling.

I spent 10 days in Hong Kong and China visiting the Hong Kong Gifts and Premium Fair, factories and even attending meetings with WAGE (www.wage-organisation.com) - which hosts over 20 distributors from around the world who share strategies and ideas. More on that in a future post.

I owe a special thanks to Jo-an Lantz, executive vice president for Geiger and the 2004 Counselor International Person of the Year, and Gene Geiger, for allowing me to be a guest on their “Geiger trade mission” – training sessions and visits with ASI suppliers designed to show three key salespeople the benefits of partnering with ASI suppliers when importing. Jo-an planned the agenda and she doesn't sleep much. She thinks that the rest of us don't need to sleep either, so we were booked daily from 7:30 am to 10:30 pm. But, we did more on our trip than most people do in three visits and Geiger’s knowledge made the visit incredibly valuable and productive.

One week in Hong Kong and China does not make me an expert, but I now have an even greater respect for the role ASI suppliers play in our industry. The Hong Kong show is huge, making any North American show look small, yet represents a small fraction of the factories available to people looking for ideas or importing options. In fact, there are three major shows within a few days of each other that all carry gift and promotional items.

The prices are so low and the people are so friendly and the quality is so good, no wonder suppliers are afraid of distributors going direct. If I only attended the show, I might have left being more afraid of what our suppliers and distributors will face. But fortunately, I got a more comprehensive education by visiting factories and talking with importers from around the world.

After these visits, I learned some very important lessons that improved the outlook for me:

Finding a good overseas vendor is hard. Just think about some of the challenges with doing business in the United States. Thanks to ASI’s rating systems, we can see how good a supplier is and leave comments. But, even then, suppliers have their moments. Now multiply our 3,400 suppliers by 10 times or so and you’ve got an idea of the number of companies overseas.

Quality varies greatly. Factories outsource to each other, without ever telling the customers. Worse, factories will change material in the middle of production and without gaining approval - simply because they ran out of the specified material. Plus, if quality really matters, than quality control varies greatly. We went to factories where the quality control ranged as far as you can imagine, as did the appearance of the factories (I was in my first sweat shop). ASI suppliers, though, know how to ensure quality and have the leverage necessary to make sure the factories meet the specifications of our industry.

Delivery times are challenging. The roads are in great shape in China and easily support the trucking industry. It was surprising to me how strong the roadways were. I was in Shen Zen, which tends to be better developed today than in Northern China, but the North is quickly growing from what I'm told. And watching the trucks try to cross the border into Hong Kong and seeing how many containers were in the shipyards was mind-blowing.

Communication is difficult. However, in some ways the factories in China are ahead of us. Almost every factory, agent and/or broker, uses Skype for phone service over the Web, and many have their Skype ID on their business cards. Yet, the way we are used to communicating is very different. I'm told that communicating with the Chinese vendors is a little easier if you follow a few simple rules (which probably are valid for U.S. suppliers also):

a. Say what you want to say.

b. Repeat what you said.

c. Follow up with an email and the agreement.

One of my biggest surprises was how many of the factories are decorating products now. Given end-buyers were also at this show, I'm sure many of them were thinking about importing direct as well. But, if distributors have challenges importing direct, and I believe they do, buyers will have an even more difficult time.

So even after a short trip to China, I can tell that a few good connections could represent a threat to the ASI supplier and distributor network. Yet, for all I learned, I instead feel more confident today in the value ASI suppliers provide to ASI distributors. Several suppliers have importing divisions now and are encouraging distributors to work with them when the situation calls for high quantities, low prices and projects that allow for longer lead times.

I also heard an unfortunate story about a distributor who got so excited about the "margins" they could make on importing, that they lost focus on selling and their business faltered. Given the amount of time and money it costs to visit the shows and factories, I'm not sure the margin gains are worth it for most.

-Dale