Note: this is an interview I did earlier this year, but all the issues are current and exciting and I thought it should get front page coverage on the Blog.
One of my first-year undergraduate students is an international businessman of some note. Steven Pawsey was recently awarded Victorian Young Entrepreneur of the year for his Stevie Marx business. I recently took the opportunity to interview him exclusively for this Blog about his experiences. Below is the first part of this conversation:
Andre: What products do you sell?
Steven: Stevie Marx Australia produces ladies fashion umbrellas. The range varies from super small mini umbrellas up to the large jumbo golf-style umbrellas.
Andre: Do you make these umbrellas yourself, or does someone else manufacture them?
Steven: All Stevie Marx umbrellas are produced in China in the city of Guangzhou. The factory specialises in the production of umbrellas and makes 30,000–60,000 umbrellas per day.
Andre: Why did you choose China as the sourcing location? What advantages did that location have?
Steven: In the modern economy, for most goods the desired production location is China. China has developed the correct infrastructure and support structure to allow buyers to satisfactorily get what they need at the price they desire. The advantage of China is that, because there are so many makers located in China, the free market competiveness works well in keeping prices relatively low. Many people associate this primarily with the cheaper labour available, however, this is only one of the many factors. The main factor is that competion is so strong in China that to maintain business they work on turnover. They know that if they earn less per product it does not matter, as they can produce 10 times as much as can otherwise be produced in other countries. So much more money is flowing in.
Andre: What have been the main challenges in managing the relationship with the manufacturer? What are the major risks?
Steven: The number one challenge in managing an effective relationship in China is the difference in language and culture. In China the language barrier can become haphazard and miscommunication can lend itself to problems of quality, production timelines and even being offered the wrong product entirely. I have had times when my maker in China has said ‘yes’ and I interpreted that as a ‘I agree’, then one week later I found out that yes meant ‘I understand what your saying but I don’t agree’. The culture difference between the West and East is also significant. Western culture endorses larger amounts of spending on things such as development, samples, production etc. Asian culture is more about conserving money, e.g. making exactly the right amount and only offering a specific amount of samples (thus minimising waste and saving money). This can get very frustrating when you have say a Target or Big W in Australia wanting five different styles of umbrella samples and the maker refuses so he can ‘save money’. This is pretty common right across China no matter what good is being produced.
In relation to risk management the major risk associated with China is quality. You need to find a maker that satisfactorily produces to your quality expectations, the consumer’s expectation and local legal requirements. You may remember a complete recall on Chinese-made Mattel toys earlier last year. This type of recall or problem always remains in the back of any importer’s mind. Their producer could make the wrong decision and lead to a disaster.
Later this week, I will post more of this conversation (Part Two is now up here). I am sure Steven would love to hear your feedback and questions thus far (I certainly would). Fire away.