August 1, 2012, 12:00 AM

Two-way street

As U.S. web retailers seek reliable suppliers, Chinese manufacturers search for good customers.

Lead Photo

China is the world's leading manufacturer, according to the United Nations. It accounted for 18.7% of the world's manufacturing output in 2010, the last year for which U.N. data are available. Low labor costs played a big role in vaulting China into that top spot, ahead of the United States. But as China develops, labor costs are rising, and in some cases it is now less expensive to produce goods in the United States than in China.

However, there are still good reasons why thousands of North American firms, including many web retailers, source goods from China. In many cases, the landed price, including packaging, can still be as much as 50% lower than producing domestically. And Chinese factories may be willing to fill smaller orders and reconfigure production lines to make unique items.

For example, California-based Slice Inc. sources its fine cutting tools, such as scissors and letter openers, from Asia for about half of what it would cost to make them in the United States, says founder and CEO T.J. Scimone. The big price advantage makes up for the negatives, he says. "The delay in manufacturing in Asia versus the United States requires that you carry a larger quantity of inventory," Scimone says. He says it takes, on average, 90 days to produce and ship his products from Hong Kong to San Francisco. The shipping charge is about $3,000 per container.

Increasingly, however, cost savings are just part of the picture. It's becoming more important for North American buyers to establish good relationships with Chinese suppliers to be sure they get the quality goods they need. This is a two-way street. Chinese companies evaluate potential buyers just as carefully as buyers evaluate suppliers.

Like manufacturers the world over, Chinese companies appreciate good customers—buyers who clearly explain their requirements, communicate throughout the production process and value good work. Chinese suppliers that offer their services through Alibaba.com tell us they look for buyers they can trust. After all, they are also entering into a partnership that involves investment and potential risk.

Good communication is crucial because traveling to China is expensive and many buyers never meet their suppliers face to face. Chinese factories often hire a manager who can speak English to handle foreign inquiries. Many of our customers use the online messaging system embedded in Alibaba.com, as well as e-mail, Google Talk and Skype, to communicate.

A supplier makes an assessment of how serious a potential customer is from her communications—and her communications with other potential suppliers. One manufacturer based in China warns sellers against sending inquiries to too many manufacturers at one time. It can be off-putting if the supplier knows a retailer has asked many companies for bids, information that Alibaba provides suppliers. "The more inquiries that are sent, the lower our interest," the supplier says.

The Chinese executive also advises buyers to chat online with a potential supplier, and to provide as much detail as possible about the desired product, not merely the price they seek.

"Communicating with your buyer every step of the way is very important," says Chinese manufacturer Lin Xiaozi of the Xgroup Corp. "All details have to be confirmed with the buyer before we take the next step. This is especially important for first-time buyers. You cannot be too thorough and thoughtful with a new customer."

So take your time at this stage of the process. "Good communication between two parties requires patience," says Shines Zeng from supplier Zhejiang Huazheng Hardware Ltd.

Find a fit

Suppliers also say they look for products that fit their equipment and personnel. "For special items in particular we need to check if the item has good potential for us," Zeng says.

Alibaba asked some suppliers in China recently whether they consider orders that would require them to upgrade or change their existing technology and production processes. A manufacturer of garden machinery responded that her company welcomes such inquiries but always assesses the order before accepting it. "We need to make sure that this product is something we are capable of making and good at making," she said. But she stressed that the factory likes to refine its design and manufacturing capabilities by working with innovative buyers.

Linda Lou, vice president of sales at Zhejiang ISRI-Shuangdi Spring Co. Ltd., a manufacturer of industrial springs, said such requests can turn out well. "We got an inquiry from a North American customer who had a special requirement on the curve of the springs, which was impossible to achieve with our equipment at that time," she said. "After evaluating the market potential of the product, and also the quality of the customer, we decided to accept the challenge and upgrade our equipment. We set up a special project team for the customer and it took us 1.5 years to remodel our machines to finally meet the quality requirement of this customer."

She adds: "We want to work with quality buyers who seek good quality and technology, and whose businesses are fairly established."

Lou says she and her colleagues use various information-gathering channels to assess a buyer. "We don't have a fixed set of standards for the customers," she says. "Our decision to accept orders is mostly based on a comprehensive assessment of the customer and, more importantly, the product that we will make for them. Even if it's a fairly new company, if we believe that the product is going to help us improve our technology and manufacturing capacities and it has good market prospects, we would consider working with the customer regardless of its size and years in business."

On the same page

One of the biggest mistakes a buyer can make, suppliers say, is placing an order without first being sure that the supplier is clear on all specifications. It helps to create an initial blueprint and then hash out details with the supplier on the phone or via e-mail. Some buyers send prototypes or samples. "We take them apart to study the structure and techniques and make changes to our design according to buyer requirements," one supplier says.

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