guanxi%20copy.jpgSome fascinating findings in this recent BearingPoint survey
of China sourcing strategies, which should be required reading for
every western business before they board the 'plane for Beijing.

The
survey is compiled from interviews with 39 German companies, but the
findings are not country-specific and they bear out anecdotal evidence
that EngagingChina has collected from companies in the west.

One
of the more surprising findings, particularly if you are used to
reading horror stories about Chinese suppliers, is that almost three
out of every four German businesses are satisfied with their China
sourcing strategy. And 20% are “very satisfied” — mostly businesses in
the chemicals, industrial equipment and media sectors.

No
surprise to see that the the main reason for sourcing from China is to
save costs, mentioned by 91% of respondents. The majority achieve costs
savings between 10% and 25%, and nearly one quarter said they saved
more than 25%.

But sourcing from China is no longer driven
solely by cost savings: 59% said they hoped their Chinese connection
would enable them to open new sales markets.

One of the key
issues identified by BearingPoint is that size does matter. Two thirds
of disappointed companies have annual revenues below €1bn.

The
higher the purchasing volume, the more attractive the buyer is for a
Chinese supplier. BearingPoint says western companies purchasing
relatively low volumes of Chinese products, will need to identify and
stress other aspects if they want to create interest from Chinese
suppliers — for example, stressing that the company has a prestigious
reputation in the west.

The length of the contract also heavily
influences the level of satisfaction with their Chinese suppliers.
Based on their own assessment of their China sourcing strategy,
BearingPoint divided the respondents into two broad groups: successful
and unsuccessful.

Half of the unsuccessful companies had
contracts lasting less than a year, while all the successful companies
had contracts of between one and three years.

China neophytes
can take comfort from the finding that satisfaction is not correlated
to the number of years that the western business has been sourcing from
China. So its never too late to start sourcing from China.

BearingPoint's
survey confirms what we have long suspected, namely that that the
development of personal relationships between contacts, the famous guanxi (*), is crucial. This issue is explored in more detail in CMO magazine.

Successful
companies rated personal connections as the most important factor in
choosing a supplier. Unsuccessful companies, by contrast, preferred to
use online sourcing tools and trade fairs, and downplayed guanxi.

But
what happens if you fall out with your Chinese supplier? The successful
companies have already established an alternate source in China. The
unsuccessful ones prefer to carry extra inventory or throw in the towel
on China and choose another country.

Other key takeaways:
quality control should done before the goods leave China, not
afterwards; patent and brands needed to be registered in China before
providing material to potential suppliers; use independent bodies to
certify suppliers; don't forget the hidden costs — shipping, customs
and so on; draw up the contract in Chinese based on Chinese law.

Finally,
don't rush. Negotiations with Chinese suppliers should be conducted
without any time pressure and contracts should only be closed after
having assessed their capabilities and commitment.

(*) Guanxi
literally translates as “relationship” and has been a central concept
in Chinese society. It describes a personal connection between two
people in which one is able to prevail upon another to perform a favour
or service. More here

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