Over the years I’ve outsourced many products to International Suppliers, mainly in Taiwan, Hong Kong, Jamaica, and China. I’ve met with many myths in dealing with them, such as they aren’t trustworthy, reliable, outsourcing is unpatriotic, etc. These attitudes discouraged many American Entrepreneurs from even trying to outsource in foreign countries despite the major benefits that could accrue to them and their customers
I thought I would try to share the things I’ve learned in successfully dealing with overseas suppliers and developing strong positive relationships with them. Hopefully some of the tips can be of help to those stepping into the arena for the first time and those already doing business there to improve their experience.
Here are my thoughts:
- Exercise PatienceAt the first meeting with potential suppliers, direct the conversation to getting to know them personally and their business. Don’t rush in, get the information you want, place an order, go home, and think things are great. Do a lot of listening.
- Learn everything about their production process and way of doing business so you can help them, such as giving as much lead-time in your orders as possible and never let them get stuck with your inventory, which they will sell to anyone if you do.
- We mostly dealt with small companies in China so we could be important to them and get their full support. It is very hard to do your due diligence on a small foreign company. We would contact the U.S, Department of Commerce in the principal’s country for help on this. Their mission is to help American companies do business in their country. We found them most helpful. Once they located the Chinese company that was knocking off our copyrighted watches and halted them at no cost to us. Industry magazines, friends doing business in your country, VC’s, local officials, etc. are sources for locating suppliers.
- Many Chinese manufacturers don’t own the factory making your goods even though they might say so. They are assemblers, but if they are reliable and priced right we used them, which was a Trust builder.
- Always give your Producers tight specs in writing. Also, insist on getting a finished sample before production begins. This sample can be matched against future deliveries for quality.
- Lay out all your expectations of them to avoid misunderstandings, some of which could emanate from Cultural differences. Many times I ran into situations where Chinese Suppliers would never admit to a mistake made on their end as they felt they would lose face. It was in their DNA. It took time to get this straight. We eventually agreed that if either party made a mistake they would quickly admit to it and correct it on their dime.
- Get to know all their key employees who will be working on your orders and build relationships with them. Many Principals avoid many of the operational details. We usually discovered that small suppliers in Hong Kong and China had some young, bright girl running the operational end of the business. We sure wanted to know and build a relationship with them.
- Always be honest with Principals. We tried to be important to our suppliers by giving key ones all the business. However as you grow you need back up to them to protect yourself and impress stakeholders and the financial community. When I did use a back-up supplier I informed my prime source about it and the reasons for it. Assume they will find out, as they usually will. By telling them in advance, they appreciate it, and it’s a Trust building move.
- The U.S Embassy in the country of your choice can help you meet or get an appointment with key people in the country. We used the U.S. Embassy in Japan to get an appointment with Seiko, a major watchmaker in the world who was ignoring our entreaties. The Embassy people were happy to help and it’s rare for them to be able to solve a problem so easily. Seiko went from ignoring our small company to offering to pick me up at the airport to a meeting in their boardroom with 12 of their people.
- We were very interested in payment terms. As we built up Trust and Loyalty, we quickly went from paying by letter of credit, to wire transfer on delivery to getting terms.
- Returns were also an issue that needed to be resolved at the outset. Initially we had a third party inspect all our orders before shipment to insure quality. After a while when we saw the quality was okay we worked out an agreement that all our customer returns based on defective quality were sent back to China for full credit. However, with many suppliers you might want to always have your goods inspected before being shipped.
- If you are a Sales Rep representing a foreign supplier in the sale of their products in U.S. you might want to suggest that the supplier set up a warehouse here to insure better on time deliveries. If they do this it might be wise for them to set up an American company here. The reason being if the politics there change for the worse the supplier can more easily bring their families here and on the path to U.S. citizenship.
- If your business grows to a certain size, you or your people should regularly visit the overseas factory. You should also encourage the principals there to visit you. When they do, be sure to invite them to dine at your house one night. For many, this is a great honor being bestowed on them.
- When you are negotiating with a translator in the room, don’t assume the supplier doesn’t understand English. Don’t say anything that you wouldn’t want anyone in the room to hear.
- A good agent to handle all your purchases, inspections, negotiations with an overseas supplier can be invaluable if you find the right one. However, there can be obstacles in doing this. If you are a small company with small volume potential at the outset, not many agents will want to work with you. Normally they are compensated on a percentage of your purchases. Our first experience was when we had a game company and made our own wooden games. For many reasons, we decided to close down the entire wood section of our factory and outsource the full line. We found a Chinese agent living in New York, and she did an excellent job for us. Most of the time you would get an agent living in the country of your supplier. Our volume was reasonably high which attracted her. When we started a watch company, all of our watches were done in China primarily with one medium sized supplier. We worked directly with the principal and used no agent, and it worked well until we sold the company. So, the agent question needs a lot of thought, testing, and adjusting. The time put into finding the right formula for your needs is worth the effort.
Overall I’ve found that international companies are as easy, or not, to deal with as American ones if you do your homework, do the right things and show them respect and friendship.