Contents

• Evolve Staying Globally Engaged
• China Manufacturing and Responsible Sustainability: A Perspective from
  Fountain Set
• The Future of Sourcing Design and Product Development in China
• Survey Results — Trends in Sourcing: Will
  the United States Expand Production?

John Pastor’s international business career began in the private sector. He started as a clerk at Schenkers International, a major global logistics and transportation company, and climbed the ladder of success to the company’s board of directors. Pastor was then recruited to become president of Pandair, another international logistics company. The company had lost more than $6 million in the previous year and required a dynamic individual to return it to profitability. In 18 months, the company was turned around and sold to a competitor.

Starting his own private consulting firm, Pastor provided international merger and acquisition services to U.S. and European businesses. Concurrently, he was appointed as the first executive director of the newly formed Delaware World Trade Center. For 15 years, Pastor has used his international expertise to assist expansion of Delaware’s economy through international trade. His leadership, hard work, and relentless drive to increase international trade have greatly benefited Delaware’s business community.

U.S. companies, including small- and medium-sized firms (SMEs) have the opportunity to expand in the Asian markets. Companies conducting business in Asia, specifically in China, need to understand the socioeconomic and cultural environment in that part of the world. Successful business is accomplished differently than in the United States. One major influence is personal relationships. People like to know who they are doing business with. Whether you are selling or buying, for a long-term relationship to succeed, a personal relationship should be developed with a Chinese partner.

U.S. companies have numerous resources in the United States to assist them in developing and maintaining business with international buyers and suppliers. Large U.S. companies already have established their subcompanies in China. These companies now sell their products in China. The companies also license manufacturing of their products in China and other Asian countries for sale locally and in the international markets.

The apparel sector in China is a major source of revenue for SMEs. Large apparel companies use some of the best high-speed manufacturing machinery to produce a large volume of products. Opportunities are there for U.S. and Chinese SMEs to work together profitably.

A U.S. SME interested in selling or sourcing a product must develop a relationship with a local partner or partners. If you are selling a product manufactured in the United States, you will need to identify the target market sector. Generally, U.S. manufactured apparel is higher priced then locally produced apparel. Therefore, it is necessary to determine how the product will be sold and through which marketing channel.

A major client base in the Chinese apparel market is teenagers. The growing middle class in the cities has higher incomes. Furthermore, parents wish to provide their children (usually just one child) with a better living standard than they endured, thus creating a generation of spenders.

U.S. SMEs generally try to do business with their American staff and resources. Selling in the international marketplace is different than domestic business. During the past 15 years of assisting companies in their international business, I have found failure is a result of certain mistakes made by the U.S. business person. The following is a list of the most common mistakes:

1. Failure to study the marketplace and obtain counseling. In the United States, there are numerous free resources available to the business person. Federal, state, and local governments provide free assistance to companies to better compete in the global environment. Use these resources to better understand an international market.
2. Insufficient commitment to international business. Many companies try selling outside the United States when their domestic business declines. When domestic business increases again, the company refocuses on their local customers and forgets the international client. A client is a client and should be treated accordingly.
3. Chasing orders. This is another time-waster, and many companies use their resources unwisely in this manner. A foreign company inquiring to purchase your product should be checked out to determine if they have the financial resources to pay. Many companies will request free samples from the U.S. business. If the request is for multiple sample orders, it can be a warning that the foreign company is just looking for free products. Checking a foreign company’s worthiness can be accomplished using several reporting services available to U.S. firms.
4. Mistakes in distributor or supplier selection. This is a critical decision. U.S. businesses must be very careful in selecting their partners overseas. Local laws and customs may limit the removal or change of a distributor or agent. Obtaining counseling can reduce the risk connected with this important decision.
5. Reluctance to modify the product. Product modification to meet local customer requirements may be necessary to sell your product. Once you have established a distributor or agent in-country, use their knowledge to modify the product to meet the local demand. Cultures around the world vary; some favor different colors as positive and consider other colors as negative. Culture also impacts the meaning of numbers. In Chinese society the number four (4) refers to death, as does the giving of a watch or clock. SMEs need to learn about local customs and cultures in the country where they are conducting business.
6. Failure to provide product information in the customer's language. Many U.S. companies have learned to provide local language instructions and literature. Failure to provide information in the customer’s language creates a negative impact on the client. Today, virtually every product in U.S. retail stores includes instructions in at least four or five languages.
7. Failure to consider partnership with a local in-country business. This can ultimately result in only short-term sales. A closer relationship with a local firm is a stronger commitment by the local firm to your business. If there is a lack of commitment, the local firm may learn about a product similar to yours that they can obtain at lower cost. They could replace your product with the lower cost item, thus increasing their profit margin. Knowing your partner and building a closer relationship is essential for long-term profitable growth.
8. Failure to provide after-sale service. If the product fails, everyone likes to know that service is available to correct the situation. Failure to provide after-sale service will result in one-time sales without repeat business. U.S. companies should provide services to the foriegn customers similar to after-sale services in the United States.

You will note I have provided eight (8) failure examples. The number eight (8) in Chinese culture is very positive; learn not to make these mistakes. Here are eight tips to consider in order to succeed in the competitive international marketplace:

• Make sure you have a competitive advantage.
• Allocate resources to build the business.
• Develop a systematic approach and plan ahead.
• Set up your organization for growth.
• Travel outside the United States to meet your customers or suppliers.
• Be patient but persistent.
• Follow-up on all contacts.
• Make effective use of resources.

SMEs Can Expand and Grow in the International Marketplace

Large apparel manufacturing companies are located in various cities throughout China. There are also networks of SMEs that manufacture products. These networks generally are organized by a business person (a procurement organizer) who will take an order to supply a line of apparel. A buyer will place the order for a specific item that must meet quantity and quality requirements. The procurement organizer’s business is to collect products from many SMEs, combine the various quantities into a larger order, and transport to the buyer.

For example, a buyer may place an order for 10,000 Western-sized white cotton shirts. The size requirement could be 20 percent small, 30 percent medium, 40 percent large, and 10 percent extra large. The procurement organizer will in turn subcontract production to individual SMEs in several small villages within a close geographic area. The SMEs would work independently to manufacture a designated quantity of a specific size shirt. At a prearranged time, the procurement organizer would travel to the villages to collect the manufactured shirts and ship the entire quantity to the buyer.

This buyer could be just another middleman in the transaction. The social-economic environment in China is based on personal relationships. Therefore, the person contacting the SMEs in the villages would have a personal relationship with the local community. One important criterion is the ability to communicate with both SMEs and the buyer. There are numerous local dialects, and language skills are essential to succeed.

The best opportunity is for the U.S. business to visit the country, view first-hand how business is conducted, and learn about the local business practices. Maximize your opportunities and profit by eliminating middlemen in the transaction process.

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