Hong Kong-based consultant Peter Zapf talks about the risks and benefits of moving production to the mainland .
Every week seems to bring news of another recall or safety issue involving a product manufactured inChina(BusinessWeek, 8/17/07). But despite the highly publicized problems, U.S. companies will continue moving their production to China, says Peter Zapf, vice-president of community development for Global Resources, a Hong Kong trade show producer and consultancy. The firm, founded 36 years ago, aims to assist business owners who want to find manufacturers and suppliers in Hong Kong, Taiwan, and mainland China. Zapf spoke recently to Smart Answers columnist Karen E. Klein. Edited excerpts of their conversation follow.
There's been so much negative publicity. Don't you think that importers are going to be scared off of manufacturing in China?
I think anybody that's looking to grow a long-term business has to look at China as a sourcing option, for two big reasons. One is the very competitive labor costs, and the other is the increasing number of new and innovative products that are coming out of that lower-cost labor market. In the past, 20 or 30 years ago, manufacturing was done in Japan, Taiwan, and Korea. In the future, who knows where it will move? But it's necessary for every company to evaluate the different sourcing options and understand the risks and benefits of each of them.
Frankly, China has lower labor costs, but it also has higher logistics costs, especially to manage a production line and have packaging done in English. Someone who wants to source in China needs to think about total landed cost, and whether they will get the product they need. It's not enough just to have something manufactured at low cost. It also has to meet all the company's specific product requirements and the country's regulatory requirements.
Your company does a lot of education for importers. How important is that now?
It's very important. We put on China sourcing fairs in Hong Kong at the AsiaWorld-Expo and in Shanghai and Dubai. The most popular of all our conference programs is "What new buyers need to know." It covers quality control processes, shipping logistics, payment and money transfer options, China business etiquette, cultural differences, and intellectual-property considerations. This is not to say you can't figure all this out for yourself, but it's tricky. And if you don't do it correctly, you may end up in the press.
And possibly not in a good way.
Absolutely.
Do you have small business owners and startup entrepreneurs attending these shows?
We have everyone from the top 200 global retailers down to eBay power sellers and everybody in between. There are tens of thousands of folks from almost every country in the world who are new to importing, and others who are already established and just want to hear about how other people do things, whether they're facing the same problems as everyone else, and how they can learn from other business owners.
Can you give us some highlights from the program?
Let's talk about logistics. Your first decision is whether to ship by air, which is expensive but fast, or by sea, which is slower but cheaper. The exception is if you have a shipment that's less than 2 cubic meters in size. In that case, the minimum fixed costs for ocean shipping are so high that it almost universally makes sense to air ship, unless your shipment is extremely heavy.
The next question is, should you take legal possession of your products at the factory, or at the port, or not until the goods get to your warehouse? If it is your supplier's responsibility to get your product to the port, the cost is higher than if you take possession at the factory and arrange transportation to the port yourself. Of course, if you request "delivered duty paid," where the supplier manufactures the goods and gets them all the way to your warehouse for you, that's even less hassle for you, but the cost will be even higher.