New Product Development and “The Adaptation Curve”

Nobody has an ugly baby.  The same goes for new product developers.  Whether an independent entrepreneur or seasoned marketing team, once a new product concept is developed and months, even years in some cases are invested, our babies become prettier every day.  The same unconditional love and support that builds as our children mature and develop transfers into the professional mindset of innovators.

Calling All Product Developers

Creating a viable and robust market for a new product takes enormous resource, planning and resolve.  The sheer capital to unveil and furthermore generate brand equity is often the most overlooked aspect of getting a product to market.  Take the Segway for instance.  This emission free, efficient mode of personal transportation has been around for over a decade.  With some quick, simple training even children can master riding this marvel.  Reaching top speeds of 12.5 mph it has a range of up to 24 miles on a single charge.  Still commercial acceptance has been scant.  Why wouldn’t every warehouse and airport have a fleet of them?

Recently two Swedish designers have developed an entirely new concept for biking safety in the form of the Hovding, an airbag which deploys vies-a- vie algorithmic intelligence protecting riders from head trauma in the event of a fall or crash.  This revolutionary “bike helmet” is worn around riders’ necks and actually becomes a stylized accessory.  At $520 prospects for commercial distribution of any scale in the next five years may be slim.  However according to Forbes writer Jeremy Bogaisky this startup has already taken in $13 million in venture capital.  He cites bicycle industry analyst Gary Coffrin who gives a great summation stating “The adaptation curve for such a unique product at this price point is not likely to be rapid.”

Taking the tech factor down a notch, in my own gym sits a clever form of a door stop called “James the Doorman.”  I would imagine the designers, Black+Bum had their “Eureka” design moment and the wheels started spinning.  Honestly I have never seen such a cool variety of a door stop and  without knowing much about how they developed this unique version of an age old application, I can’t comment on what lengths they went to in commercializing their product.  I do know that the one in my club is the only that I have ever seen.

Every week we hear from inventors and product developers who have put great thought into products which offer unique solutions to every day needs.  Often though there are many missing pieces to their overall strategies.  Below are the Top 8 Hurdles to Successful New Product Launches.  In the coming months, I will be writing a series which individually expands on each of these, why they are often overlooked and how they are important for taking new products to market.

1. Product Development Costs 

Most inventors underestimate the cost for designing a manufacturing ready product.  Tools and molds can easily run into the five to six figure range and can dwarf first year profits.  Developing engineering drawings—those that translate into production and material specifications  require time and money.

2. Distribution Channels

Some products are ideal for Big Box retail but unless you know how to navigate this space, most category managers are not going to take a chance with a single line item vendor.  It creates additional administrative work for the system, and most inventors don’t have the capital to market their products.  Specialty and on-line retailers generally are better proving grounds for a products’ acceptance but you still have to generate interest and traffic.  Oh, and did you get a UPC code yet?

3. Inventory Capital 

Minimum order requirements (MOQs) by factories usually cause a lump in the throat.  Even if you have the greatest gadget in the world, how do you plan on financing that first big order?

4. Educating the Masses 

How will you announce the arrival of your new product to the world?  Magazines?  PR campaign?  Put an ad in the paper?  Direct Response Television (DRTV) is a great but often expensive form of advertising and one of the best ways to demonstrate a new application or use as well as building brand equity.  It’s great to have a video on your web site but again, how will you drive viewers and a following?

5. Price vs. Value 

In the initial phase of your product’s life-cycle there will likely not be the scale (volume) to drive down production cost.  Unless you can convince consumers they should pay a premium retail price, break-even may be longer off than you expect.  Plus, buyers will tell you whether your SRP (Suggested Retail Price) is in line with their category. 

6. Regulatory and Testing Requirements 

With your product in the public domain, most retailers will require some sort of regulatory or product safety testing and compliance with groups such as the Consumer Product Safety Commission (CPSC), Underwriters Laboratories (UL) and others.  Depending on what industry you are in, your item may require testing and certification by default.  To you this means additional time, red tape and money.

7. Patent and Intellectual Property Protection 

This is perhaps the most critical and misunderstood area of product development.  In many cases developers could have saved themselves months of work simply by doing some basic research and analysis.  The United States Patent and Trademark Office site has become more navigable and efficient thanks to improvements in their search functions.  There are three ways to begin your inquiry using key words, designs or a combination to see if someone else has registered a similar product.  Even if they have you may be able to make some functional changes to distinguish yours but again, many underestimate the time and capital required to protect the investment of your innovation.

8. Aftermarket Sales and Support

Now that you’ve got a patent pending, finalized your business plan, raised early stage capital, have product on the warehouse shelf and are starting to generate traction don’t forget the basic administrative requirements.  If you hit the lotto and are selling to Wal Mart, using retail link is a requirement.  This entails sending a staff member for training and ultimately using their on line tool daily or weekly.  Is someone manning the phones for product questions and concerns?  How robust is your web site?  Oh, we haven’t even discussed how much this will cost to build.

While these hurdles aren’t surmountable, it is critical to factor in all the critical and time consuming elements of bringing a product to life.  Even this list is not comprehensive enough to account for the unexpected turns in the pathway to new product development.  If it were easy, everyone would be doing it.

Read Part 1: New Product Development and the Adaptation Curve

David Alexander is president of Baysource Global and has a decade of experience with new product development and contract manufacturing.

Protecting Brand Integrity While Manufacturing Overseas

manufacturing in china

In the world of business, financial objectives have traditionally prevailed over the values of social responsibility and ethical behavior. As the global business landscape continues to flatten in an increasingly competitive economy, companies have to find ways to reduce costs and uncertainty more than ever. Supply chains are the low hanging fruit for finding new buckets of savings.

For much of the last 20 years U.S. firms have followed the trend  to low cost country sources for labor savings offered through outsourcing. Technology and globalization have made manufacturing parts in one nation, assembling them in another, and selling them in a third a reality. Although controversial at times, outsourcing has proven itself to be expedient and highly profitable.

Without proper due diligence there can be a dark side to outsourcing. Throughout the years a series of highly publicized public relation nightmares regarding child labor violations and reprehensible working conditions at Asian factories have impacted companies such as Nike and Apple. If not managed carefully, manufacturing overseas can cause serious damage to brand reputation. Consequently, this can have devastating effects on the bottom line for businesses who’ve either shrugged a cold shoulder at or simply overlooked the social welfare aspect of global manufacturing. In a world that’s outsourcing more than ever, the idea of social responsibility has become inextricably linked to a company’s identity.

Consumers and the businesses that ultimately serve them through the B2B framework can no longer simply assume that products are being safely manufactured by highly skilled, adult workers in favorable work conditions. Nor can we afford to assume that all foreign workers are recipients of the same high standard of worker’s rights, as seen here in the United States and Europe. With social media, and the general transparency that the internet brings, today’s highly informed consumers are holding businesses to a much higher standard when it comes to manufacturing responsibly.

Outsourcing affords small and medium sized businesses the opportunity to compete  in the same marketplace as their giant, corporate counterparts. Socially responsible outsourcing must be approached cautiously with a partner you can trust. Having a reliable overseas partner that can provide your business with a factory social-audit check allows your business to mitigate the risk of destroying the good-will and reputation that your product or brand has built up through the years.  Businesses considering moving their manufacturing operations abroad need to consider how to manufacture overseas without risking the reputation of their brand.

Ethical businesses have the power to transform their organizations and supply chains into sustainable practices that people can trust. Rather than viewing suppliers as a network that they simply manage they are valued as partners in a powerful brand  that generates shareholder value and an long term goodwill. Ethical businesses value transparency,  long-term relationships and human rights. A reputable business ensures that products are produced in factories with technically skilled and legal workers that meet both domestic and international safety and work condition standards.

With operations dispersed around the globe, the modern business is a fundamentally different animal from its predecessors. The days of achieving profitability by any means necessary are over. Even as more  companies jump onto the social responsibility band-wagon there still remains a perpetuating stigma that businesses who manufacture their products overseas choose profits over values. Globally-minded companies that take an interest in manufacturing abroad should exercise prudence in selecting an over-seas partner that preserves product integrity and social values, in addition to affording clients the ability to capture the cost-savings opportunity out global outsourcing.

 

Michelle Scheblein is China Business Analyst at BaySource Global. She has a B.A. in international business from the University of South Florida and has resided in China from 2013-2014. She can be reached at Michelle.Scheblein@baysource.net

Playing Football in the Rain

football-in-the-rain11
Growing up in Ohio, I was fortunate enough to play football on a pretty decent high school team. Our season began in the dog days of summer and ran into the first autumn frost. At some point during those four months a good solid downpour during a game was inevitable which meant a contest mired in mud and the need for a revised game plan.

Now the pessimistic coach might consider this to be a disadvantage to his chances of winning the game. But a more strategic and forward thinking leader would understand both teams faced quarterbacks with wet hands, blockers bogged down in soggy clumps of turf and receivers whose completion numbers were going to be anything but stellar. The conditions of the game while presenting new challenges, would be equitable for each participant. So in the end it would be a level headed strategist who understood and exploited his team’s strengths—advantages even we may not have known we had, who would be celebrating victory after four quarters of play.

In low cost country sourcing, I have heard grumblings for the past five years about jobs lost to China. Indeed, the groundwork laid by Kissinger and Nixon in the 70s to open up free trade with China could have been perceived as an overcast forecast for some players. However, just as we discovered, the right plans and execution meant we could be quite successful rather than assuming failure was looming.

82024646

Global Impact

China is set to become the world’s second largest economy. Those Western companies, who have built the equity of their brands over the past several decades, should recognize the opportunities that exist in China and other parts of Asia for marketing their goods and services. The investments U.S. firms have made in intellectual property, trial and error and innovation are unmatched anywhere in the world. So why haven’t more companies embraced this vast market that exists?

Whether we are talking about cosmetics, heavy equipment, apparel, software, consumer goods, or electronics, there is an insatiable demand for Western products overseas. Even in today’s depressed economic times, the needs for world class technology to complete huge infrastructure projects provide rare market opportunities to international companies.

China’s rebound for the first 3 months of 2009 is considerable. Expectations for economic growth for the next quarter are at 12%, so economists generally expect 7 to 8% overall growth this year.

Why then, is China poised for a rebound when the rest of the global economy is experiencing its worst performance in decades?

According to reports out of China, retail sales have continued to increase strongly with the help of the government which has offered China’s 800 Million farmers VAT exemptions on big ticket purchases, namely electrical appliances. The resulting effect is a replacement of exports through domestic consumption without a loss for the state. Retail sales went up 15% this past March compared to the same time a year ago.

China announced its stimulus investment program last October and took extraordinary measures to make it happen. Just prior to year end, 2008, USD 58 Billion of pending projects were approved within one week. Because the Chinese save most in the world they created the largest bank in the world (in deposits) passing American and Japanese rivals JPMorgan and Mitsubishi-UFJ. China is now home to the top 3 banks, reflecting the confidence of investors in Chinese banks. In the first quarter of 2009 new loans accounted for more than all new loans in 2007.

Exports are picking up too. From a monthly all time high of USD 136 Billion in September 2008, exports fell every month to a low of USD 65 Billion in February (25% less the 2008 figure). But, in March they rebounded to 90 Billion.

83022265

New Market Opportunities

China’s size and growth create enormous opportunity in 2009. As a growing consumer market, the number of millionaires has grown to 825,000, many younger than 40. According to an April 30 Wall Street Journal article, the $585 billion stimulus program has “quickly funneled money into everything from bridges to consumers’ pockets.” There are countless municipal projects which now need to be completed including high speed trains, power plants, telecommunication systems, hospitals and water treatment plants–all which will be built in second and third tier cities. Business processes outsourcing (BPO), and high-technologies have been singled out as fast investments on the coast. Hi-tech will continue to rebound driving demand for components – all which will be made in China. Imports have started to recover since the beginning of the year.

Heavy equipment sales have increased as is evidenced by the attendance of almost 200,000 visitors to the China International Machine Tools fair in April. Caterpillar Inc. CEO James Owens, according the WSJ article, says “the company’s excavator sales in China have returned to record levels in recent months.” He goes on to say that “China continues to start work much more quickly than the U.S.”

Lower Manufacturing Costs

According to a recent report by Supply Chain Digest, “between lower wage pressures and the fact that most Chinese factories operating at low levels of utilization, Western buyers are gaining more pricing clout than they have had in years. The Chinese government, for example, says the value of China’s exports fell 25.7 percent year-over-year in February, accelerating from a tough 17.5 percent decline in January.”

Estimates of Hong-Kong based manufacturers in China indicate that business activity is stabilizing 20-30% lower than before the crisis. Forced to reduce prices in an over-supplied environment, Chinese producers have no other choice but to become the most competitive, even against other Asian producers.

“Deflation [in China pricing] is here to stay,” believes William Fung, managing director at Li & Fung. “Buyers have more of an upper hand again.”

That’s because export volumes to the weak economies of the US, Europe and Japan show no signs of recovering soon. However, there are signs that China’s manufacturing sector is recovering on its own, without much help from export customers, as the country’s economic stimulus plan and focus on bolstering the internal economy start to pay off.

By February, the producer price index went down 4.5% year on year, to its November 2007 level. The trend accelerated in March with a 6% drop. The consumer prices naturally followed, resulting in an actual deflation (-1.6% in February and -1.2% in March).

83971317

The World’s Second Largest Economy Emerges

According to Daniel Meckstroth, economist at the Manufacturers Alliance in Arlington, VA, “the hope is that China would become an engine of growth to drive the local economy.” China’s proactive response to the crisis has enabled it to be the first to bounce back. This flexibility will not only result in China becoming the world’s second largest economy, but will also let it take its rightful place atop the value chain. Therefore it will have to invest to improve and maintain its cost competitiveness, as both a viable market and as a manufacturing leader. Should the U.S., Europe and other trading partners be able to weather the current storm, China will play a major role in world economic recovery.

A Winning Season

Those U.S. companies who spend their time, energy and resources embracing this new China market rather than disparaging others who offshore low value added labor, will actually enjoy playing on the muddy playing field that our global economy has become. In the end, the sun will still rise in the East and set on the West. The soggy ground will firm up and those who respond to all elements of the season accordingly will record a win.

David Alexander is President of BaySource Global, a U.S. based manufacturing and project management firm with offices in Shenzhen and Shanghai. www.baysourceglobal.com

4 Ways China And The U.S. Could Build Brands Together

selling chinese products in america

A question was recently posed on a LinkedIn Group asking why there aren’t more Chinese companies selling brands into the U.S.

Rather than taking a myopic view on the question or dismissing the notion that Chinese brands per se’ have little to no chance of overcoming the stereotype of the U.S. consumer,  it strikes me that the real opportunities continue to lie in synergizing and combining strengths, resources and talents.  The skills for identifying and penetrating the best distribution channels in the U.S. are here.  If a Chinese entity wants to lever this market they are wise to understand that this can’t be done (yet) with a Chinese brand or with Chinese sales and marketing.

Conversely however, through innovation, low cost labor and subsidies, China remains the factory to the world in multiple categories.  There are facilities in China that are far superior to our own.  What has been increasingly evident is China’s transformation from merely an OEM to an ODM supplier meaning that in addition to offering strictly manufacturing China is now becoming a low cost design and engineering hub.  So don’t think cheap cost is the only driver for China’s potential here.

Beijing has taken note of the dearth of Chinese brands.

“We’ve lost a bucketload of money to foreigners because they have brands and we don’t,” complained Fan Chunyong, the secretary general of the China Industrial Overseas Development and Planning Association. “Our clothes are Italian, French, German, so the profits are all leaving China. . . . We need to create brands, and fast.”

So according to Tom Pomfret’s Washington Post article titled, “Beijing tries to push beyond Made in China Status,” the government has responded in lavish status by embracing a “going out” strategy http://bit.ly/going-out  backing firms seeking to seeking to buy foreign businesses and gain a foothold on innovation.

If China wants to deploy its assets by capturing a piece of a market here OR if a U.S. company wants to sell into the Chinese market here are four key considerations.

1.  A Brand Is A Very Different Thing Between Our Two Countries

Most brands sold into China are Western.  For the Chinese it is more cache’ or prestige that drives demand.  For the U.S. a brand is many things but mostly involves years of exposure and dollars spent positioning the brand to its respective markets (assuming high quality and value are the cost of admission).  Only in the last 10 years or so has there been demand for consumer brands in China yet there is almost built in demand for established brands from the West.

2.  Successes and Failures of Previous Attempts

For U.S. companies wanting to tap into the China market they should consider brands like Loreal, Buick, and Coke to see what has been successful and what has failed.  You can’t simply put a known label on a piece of junk and believe you’ll capture the loyalty of the Chinese market.  The Chinese want prestige yes, but they also focus on safety and quality too.  Are you speaking to a younger audience;  the decision influencers of the future? See http://bit.ly/caWdra.

What about distribution channels?  We may understand traditional retail here but it is a completely different game in China.  According to the China Chain Store and Franchise Association, the number of stores of the 100 largest retailers in China increased 18.9% in 2009. The 100 largest retail chains sold only 11% of all consumer goods in China.  How is your experience marketing to kiosks and neighborhoods?  Have you ever set up a sales force to tap into a billion person market?

3. Patience is a Virtue

If a Chinese investor(s) wants to sell goods into the U.S. they will have to have reasonable expectations for investment in gaining market share.  They won’t necessarily understand or be patient with the initial burn rate of capital for their ROI so tell them to fund the endeavor, put it the hands of U.S. marketing professionals and apply their expertise and focus on the supply chain and manufacturing.  This isn’t to suggest in a cavalier way that they should be totally hands off.  As principals they have every right to monitor their investments.

4. Future Opportunities

There are enormous opportunities in the creation of funds that don’t necessarily follow the typical M&A or PE models when it comes to risk or multiples.  There are many well known companies who through their years of staying power still maintain significant brand equity yet may only be doing $10-$50MM in sales–not enough to fly on the radar of big deal makers yet still very viable with the right investor profile.

Take that state of the art factory you have in Shenzhen and manufacture AND OWN an old U.S. brand putting together a “newco” re-launch model.  There has never been a better time and available talent here.

We are not going to see Chinese or U.S. brands in the future but rather well funded global brands that offer businesses or consumers the best return for their investment.

David Alexander is President, North America for BaySource Global, a strategic solutions provider specializing in specialized sourcing, project management, distribution and fulfillment in China.    www.baysourceglobal.com

China News

Each day we read and hear more and more about the co-mingling of China and the U.S. as these two interdependent nations refine their geopolitical position with each other and the rest of the world.  China is a vast nation teeming with industrious minded entreprenuers who are seeking their fortune much in the same way as U.S. pioneers in the early 1900s.  Our countries are indissolubly linked from an economic standpoint and nothing on the horizon seems to contradict this long term description of our relationship.  China, while still “factory to the world,” will forge ahead in Western style to build consumer brands, capitalize on the meteoric rise of a middle class market, and play a vital role in world financial markets.  It is a story that will be amazing to see unfold and in no way does the ending have to be a negative one as both nations continue to innovate and lever their strengths and resources. 

If you or your colleagues and associates have the need for a competent and experienced partner to manage your company’s China business, we want to be just that.  We have a China staff of over 30 who have working knowledge of hundreds of industries and disciplines.  Our specialties are complex manufacturing assignments, supply chain management, fulfillment and distribution in China, greenfielding, and highly competent project management.  We are integrity driven, quality focused and have an ardent desire to see our clients succeed in every undertaking. 

Thank you for allowing us to continue to reach out to you with newsletters and emails.  Should your business plans include any aspect of dealing with China, please don’t hesitate to contact us for a free, no-obligation consultation.  

China to continue RMB exchange rate reform Chinese President Hu Jintao reiterated on May 24th that China will continue to steadily advance the reform of the formation mechanism of the RMB exchange rate under the principle of independent decision-making, controllability and gradual progress. Hu made the remarks at the opening ceremony of the second round of China-US Strategic and Economic Dialogue in Beijing. 

Hu said China will continue to pursue a win-win strategy of opening up. The country would expand market access in keeping with established international economic and trading rules, support the improvement of international trading and financial systems, and askance trade and investment liberalization and facilitation. 

On China’s effort to accelerate the transformation of its economic development pattern, he said, “We will make great effort to expand domestic demand and increase household consumption, vigorously promote sounds and balanced growth of external trade, and reject protectionism in all manifestations.” 

China’s trade back into surplus After a US$7.2bn deficit in March, China’s trade retuned to surplus in April but shrank 87% from a year earlier due to faster growth in imports. The trade surplus stood at US$1.68bn in April, according to the General Administration of Customs. Exports rose 30.5% you to US$119.92bn in April, while imports surged 49.7% to US$118.24bn.

Harley Sales Up Harley Davidson Inc has reported that sales in China doubled last year, according to Rodney Copes, VP of international sales. Since it entered China in 2005, Harley has developed four dealers nationwide – one in Shanghai – and plans to open four new dealerships this year in Wenzhou, Xiamen, Dalian and Chengdu. 

Foreign Investment Reflecting the determination of China’s central government to attract additional foreign investment-and to direct that capital towards industries and regions that serve the government’s broader social and economic goals-the State Council issued Several Opinions on Further Utilizing Foreign Capital (Foreign Capital Utilization Opinions) on April 6, 2010. The Foreign Capital Utilization Opinions set priorities that encourage foreign investment in research and development centers, high-end manufacturing, high and new technology, alternative energy, and other environmentally friendly industries while discouraging investment within industries that consume large amounts of energy, pollute the environment, or are already over capacity in China. 

Shanghai Pudong – new policy on JVs On 13th April 2010, The Shanghai Pudong People’s Government issued the Tentative Measures On Setting Up A Sino-foreign Equity Joint Venture (“EJV”) and Cooperative Joint Venture (“CJV”) In Pudong (“Tentative Measures”). The Tentative Measures have been introduced to allow domestic natural persons to establish EJVs and CJVs in the Pudong New Area. The Tentative Measures came into effect on 1 May 2010 for a trial period of 2 years. 

The Chinese laws on joint ventures, which were initially issued in 1979 and 1988 respectively, do not allow domestic natural persons to set up EJVs or CJVs with foreign companies or individuals. Such restrictions do not conform to the principle of “national treatment” and so have been seen as being an obstacle to domestic individuals hoping to cooperate with foreign entities and/or individuals. As the Chinese people are becoming more prosperous, pressure has increased to abolish the existing restriction. 

The usual way to circumvent the restrictions is for a Chinese natural person to set up a limited liability company (normally a one-person company), and to use the new company as a vehicle to partner foreign parties. However this route is very inconvenient and the issue of the “invisible investor” has led to many disputes between contracting parties. 

Foreign investors have encountered difficulties when trying to partner with a Chinese citizen they trust. There has been rapid growth int he need for cooperation between individuals from SMEs and foreign individuals in high-tech and creative industries. As the officials from Pudong said, “We have changed because such change is required.” 

Highest Level of Confidence  Chinese consumer confidence rose int he first quarter of the year to the highest level since 2007 as people became more optimistic over their future, a survey by Nielson Co and the National Bureau of Statistics. The Consumer Confidence Index in China climbed to a three-year high, bolstered by better employment prospects. However, people’s willingness to spend fell slightly due to soaring asset prices.

World Expo Opens  Shanghai kicked off the 2010 World Expo with an extravagant opening ceremony and fireworks show. The two-hour performance at the new US$270m Expo Culture Centre ended with a spectacular outdoor multimedia show punctuated by a parade of hundreds of national flags carried by boats along the city’s Huangpu River. The city has spent US$45bn, more than Beijing spent not he 2008 Olympics, to put on what it says will be the biggest Expo ever.

 

David Alexander is President of BaySource Global, a U.S. based manufacturing and project management firm with offices in Shenzhen and Shanghai. www.baysourceglobal.com

Is Your Offshore Operation Staffed By U.S. Based Professionals?

doing business in chinaOne of the greatest perceived disadvantages of Chinese based manufacturing firms is the lack of having a U.S. contact who is knowledgeable about and engaged in your business. 

Our firm, with its intimate understanding of China is based in the U.S. with a China based operating staff. Things can and do go wrong and having the peace of mind that you have a contact in the U.S. is invaluable.

This goes a long way, particularly in the start-up phase of a project as you require hands on involvement with your project.  It is important that you have a day to day contact in your time zone for trouble shooting, planning and preparation.   Too often small but critical details can be lost in translation as operators try to work through cultural barriers, time zones and misunderstandings.

ManufacturingInChina

Even those dealing with a satellite factory right in the U.S. have to deal with production issues, timing and other miscues.  If you’ve ever played the secret game as a kid, where one person begins a story, then passes it around a ring of people until the last one hears it, then you have seen how details are lost and the story is altered from its original concept.  The same is true when passing along instructions to your offshore manufacturing partners.

Unless you have a consistent source, who speaks your language and understands the objectives, you can end up with a mess.

A Community of Opportunity

Last fall I visited a state of the art precision die cast factory in Southern China. By my estimate they do a turnover of ~USD$400MM. This facility had two very sophisticated machines that were designed and manufactured by the Japanese and could essentially be used for highly technical military products although they were simply utilizing these for their advanced automation in making automotive (carburetor) parts. After a long lunch, the owner took us to their R&D building where they had something they wanted us to see. It was…a turkey fryer. That’s right. They had devised a turkey fryer that uses 80% less oil than deep frying. Already they had complete prototypes for cooking French fries.

You may be wondering where this story is headed. I had to admit I was a bit taken back by this “top secret” invention they whetted our curiosity over during our meal. But in their thorough marketing analysis, they had deduced there was no similar Western device yet on the market. It just so happened to be November and thus the American Thanksgiving holiday was just around the corner. This factory had a business plan in place, knew their total market universe in the U.S. of those who deep fried turkeys vs. oven, and even recognized this was a stronger activity in the South. In fact, they had determined that their distribution channel likely needed to begin with HSN or QVC and migrate into traditional retail.

What they didn’t have is a contact in the U.S. to assist with the launch nor did they know anyone who could introduce them into this market. They explained they were missing a key intermediary who could introduce this new product to a leading cookware company, someone familiar with infomercials, or a firm that could handle direct sales and distribution. If so, they believed annualized sales could reach USD$50-100MM. Have you seen this product on the market yet?

Sure there are low value added jobs that have gone offshore. And by the way, we haven’t stopped manufacturing in Central and South America and Eastern Europe. But there is an interdependency between China and the U.S. that can’t be ignored. There is also a huge market in China for our goods and services. Take the story of Dais Analytic whose desalination and wastewater technology will add up to 1,000 jobs in Tampa, FL over the next five years. Just this week, Warren Buffet’s Berkshire unit purchased Burlington Northern Santa Fe which is a huge bet on increased trade with China. And as a growing consumer market, the number of millionaires in China is 825,000 and growing, many under 40 years of age.

If you take this story out of the realm of turkey fryers, the Chinese are innovating every day but will rely on marketing expertise here to be successful. Likewise, there are Western companies who require cutting edge innovation and new product development to maintain and gain market share. Possibly this could lead to Eastern entities establishing beachheads in the U.S. The typical hurdle rates that private equity and investment banking firms require to do deals may be cast aside by Chinese courtiers who seek a foothold in the U.S. to incorporate their intellectual property, low cost labor structure and “can-do” spirit with U.S. brands.

It is truly a global landscape yet we seem to be protectionist by default. If we start embracing opportunities as a global “community” vs. simply a global business landscape, we have the chance to merge our creativity and assets to serve one another.

David Alexander is President of BaySource Global, specializing in project management, supply chain and cross border opportunities with China. www.baysourceglobal.com

PriorityPass.com!

Down on China? Not so fast

1.3 billion people. Or at least that’s the most widely believed figure representing the population of China. There are many who believe the number is actually 1.5 billion and growing. China’s GDP is back to 10% and thanks to the 2009 stimulus package there are tens of thousands of infrastructure jobs in progress. So why aren’t more decision makers including China in their plans? One Tampa company did just that.

PriorityPass.com!

Dais Analytic got its start producing high-tech filter membranes to improve air quality and cut energy costs in homes and businesses. It has expanded to develop products for desalination, wastewater treatment and energy storage, among other things. Although it currently has only 18 employees plans have been inked to add 1,000 jobs over the next five years, thanks to a $200 million trade agreement with China. Born about 10 years ago from an idea for developing fuel cells at Rensselaer Polytechnic Institute in Troy, N.Y., Dais Analytic opened in Pasco County in 1998, lured by tax breaks and assistance. The company specializes in nanotechnology: crafting materials that work with matter on the atomic and molecular level.

Its first commercial product, called ConsERV, is used with heating, air-conditioning and ventilation systems. It uses a membrane with microscopic channels that allow molecules of water to pass through the filter.

Incoming and outgoing air pass through the membrane in separate channels, with the outgoing air helping to cool the incoming warm air. The humidity in the air is condensed to molecules, so it becomes vapor with no condensation. Using the membrane to bring fresh, filtered air into the home or business can save energy costs and reduce pollution, the company says.

BaySource Global assists companies in their offshore manufacturing strategies as well as working with U.S. companies who are looking to commercialize their lines within China.

www.baysourceglobal.com

Book With ParkSleepFly.com Today!

Who Is Responsible For Monitoring Quality When Utilizing Low Cost Country Sources?

China is notoriously blamed for quality issues in products sold in the West. But who really is responsible for ensuring quality can be found in products shipped abroad from China? In a former July post to 10 LinkedIn Groups associated with manufacturing, engineering, supply chain and quality control this was the question posed. Readers eagerly provided a total 104 responses of which 49 gave specific answers.

The results could be summarized and compiled into 8 consistent categories. They were:

1. The Manufacturer – 11 respondents
2. Purchasing- the buyer- in house sourcing – 8 respondents
3. A reliable third party QC firm – 8 respondents
4. Cross functional teams (purchasing, engineering, & production) – 7 respondents
5. The company importing the goods – 7 respondents
6. In house QC – 4 respondents
7. The seller/customer – 3 respondents
8. Entire supply chain – 1 respondent

11 Sage Morsels of Advice:

• Do not start LCC sourcing if you are not able to build the appropriate team. Consider outsourcing it to insure the quality of your supply chain.

• Specifications must be clear as to the quality standards expected and the acceptance test regime and what happens to the rejects – you do not want them to appear in the local street market if it is a branded item!

• Be present at intervals throughout the production process. The factory you visit may not be the one producing the goods.

• Establish a personal rapport with your supplier. It is good business and makes communication a lot easier.

• Arrange for acceptance testing – either by your own staff or by an outside agency in the country of origin. Nothing is shipped without inspection.

• Develop a supplier approval process.

• Allot resources for site visits.

• Get references for third party teams.

• Determine their ability to complete the contract. Determine if supplier is financially stable. Assure that they have systems and certifications, such as ISO-9001, in place.

• Ensure that they are motivated to provide quality and on-time delivery.

• Be clear why you are using a low cost country and take all costs into account – it may not be so low cost in the end.

So in summary, everyone has a stake in quality even though it is easiest to point the finger at the manufacturer (China). If we capture all the great advice from industry experts, heed the wisdom and incorporate all these due processes, everyone will come out a winner.

LinkedIn Groups:

GVRT Council of Supply Chain Managers
Global Sourcing
Innovative New Product and Service Innovators
ISM Purchasing and Supply Chain Managers
Offshoring & Outsourcing Forum
Procurement and Supply Chain Leaders
Procurement Professionals
Retail Global Sourcing
SME Society of Manufacturing Engineers
Strategic Sourcing and Procurement

David Alexander is President of BaySource Global, a leading China consulting firm specializing in project management, sourcing, establishing China procurement, and selling into China. He can be reached at david.alexander@baysource.net

www.baysourceglobal.com

Embracing Global Resources for Local Advantages

David Alexander

David Alexander

In the midst of these economic challanges, decision makers need to understand the advantages of looking globally for positive domestic results. While jobs shrink in the U.S. it has been easy to cast a dark shadow with manufacturing outsourcing as the key culprit. Too often though we sit back and scratch our heads wondering why low value add jobs have moved offshore rather than strategize on how to effectively incorporate the benefits of low cost labor with supply chain initiatives here. For marketers in the U.S. the value propositions of product innovation, speed to market and service have to be the platform which separates winners from their competition.

In the April 8 Wall Street Journal, writer Tim Aeppel features Craftmaster Furniture and their story of winning market share while competitors flounder. By combining a solid offshore sourcing initiative for high labor components and unique upholstery with the need for quick turnaround time and service, CEO Roy Calcagne has “increased revenues by 4% in an $80 billion industry that has declined by 20% in the last six months. Craftmaster has even hired 75 additional workers in a factory that employs almost 500 according to Aeppel’s article.”

http://online.wsj.com/article/SB123879125297987681.html

 

Basically the company takes the approach of a nimble and responsive partner to their customer base, while maintaining margins through low cost country sourcing. This collaborative strategy is one that has continually proven effective in the U.S. and not immediately stereotyped for the demise of overpriced, low value jobs. See

http://www.baysourceglobal.com/PortlandBusinessJournal-BaySourceWhitePaper.pdf