Supply Chains Narrative Essay

China wants to show the world that they are living up to the World Trade Organization (WTO) commitments. But, will need to play by the Chinese trademark system and that means having brand registered in advance, as China is a first to register rather than first to market the system.

Finding the Right Supply Partner:

One of the biggest determinate that makes or breaks a sourcing program in the People’s Republic of China (PRC), is finding the right partner. It seems that everything these days is made in China and that it would be easy to find a supplier. In reality, finding the right supplier can be a daunting task. China is a massive country over 700 cities making up one quarter of the world’s population spread over an area of four million square miles with extreme variation in price, quality and production ability. Probably the biggest headache for American buyers when conducting supplier research is that there are no comprehensive industry guides.

Furthermore, ISO certification does not carry the same weight as in the West and websites do not always realistically portray the supplier’s ability. The fact of the matter is that only through physical inspection of the facilities and review of actual production samples will gain a true understanding of a supplier’s ability. It is a daunting task, but the time, energy and funds spent on a trip to China during the initial supplier identification phase will pay dividends in the long run.

Ability to Control Quality:

In an ideal world, the manufacturer could handle their QC internally and defective goods would never leave China. In reality, there is often a lot of hand holding required to ensure the suppliers fully understand your specifications and quality concerns, especially during initial production runs. Setting up your own sourcing center in China is not a realistic option for most US buyers. However, there are some simple rules to keep in mind, which can limit risks. Always see an actual production sample from the actual supplier before issuing payment or placing a Purchase Order (PO) This lack of transparency complicates service, price and communication. Ask the supplier to provide their internal QC documentation as part of the buying process. Employ local auditors and independent laboratories if unable to conduct final QC on the systems. Their service fees are very small compared with cost of faulty products in your supply chain.

Security:

To ensure blueprints, design specs, tooling and brand names are protected. This is a concern shared by most international purchasers doing business in the PRC. Do not disclose the product’s final use or branding and remove confidential information from prints and samples. Consider dividing your product into individual components or focusing on only key components to conceal the big picture during the request for quotation stage. Let the supplier quote based on the product and order size. This may involve employing a sourcing agent to conduct the initial research on your behalf with out disclosing your vital information.

Distribution Centers

The lack of efficient distribution channels is a serious obstacle for foreign companies looking to sell their products in China’s vast consumer base. Many foreign companies hope that a Chinese joint venture partner will be their ticket to quick access to the local market. This strategy does not always work often; the foreign company later finds out that the local partner had little to offer in terms of a magic key to unlock the market, since the distribution infrastructure simply is not there. In addition, many Chinese companies are still trying to understand how a market economy works, as opposed to the past where China’s economic planners simply told them what and how much to produce as well as whom to sell its products and services.

The perception of China’s lax enforcement of intellectual property rights also remains an impediment to foreign businesses which main competitive advantage is often their well-known brand names and patented technologies. AKLLR, biggest concerns are how we can protect our intellectual properties and whether or not we can source qualified local management staff. The maker of air filters is planning to establish a joint venture with its current Shanghai-based distributor that would import key components for its heavily patented filters from the United States for local assembly.

Socio-cultural Risks:

“Guanxi” literally means “relationships”, stands for any type of relationship. In the Chinese business world, however, it is also understood as the network of relationships among various parties that cooperate together and support one another. The Chinese businessmen mentality is very much one of you scratch my back, I’ll scratch yours. In essence, this boils down to exchanging favors, which are expected to be done regularly and voluntarily. Therefore, it is an important concept to understand if one is to function effectively in Chinese society.

The importance of “Guanxi”

Regardless of business experiences in ones home country, in China it is the right “Guanxi” that makes all the difference in ensuring that business will be successful. By getting the right “Guanxi”, the organization minimizes the risks, frustrations, and disappointments when doing business in China. Often it is acquiring the right “Guanxi” with the relevant authorities that will determine the competitive standing of an organization in the long run in China. And moreover, the inevitable risks, barriers, and set-ups you’ll encounter in China will be minimized when you have the right “Guanxi” network working for you. That is why the correct “Guanxi” is so vital to any successful business strategy in China.

Although developing and nurturing the “Guanxi” in China is very demanding on time and resources, the time and money necessary to establish a strong network is well worth the investment. What AKLLR could get in return from the favors for our partners is often more much more valuable, especially in the long run. Even domestic businesses in China establish wide networks with their suppliers, retailers, banks, and local government officials. It is very common for individuals of an organization to visit the residence of their acquaintances from other organizations, bringing gifts (such as wine, cigarettes, etc.). To start, AKLLR must pay close attention to our immediate Chinese network, and try to establish good “Guanxi” with them. They can indirectly link us to new acquaintances and information resources, thus helping us to develop other right “Guanxi” we may need.