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By David Lindley
President, EXIM LLC

Checking my email early one morning, I see correspondence from a friend in Florida. He is building a new organic produce operation and needs literally several football size fields' worth of steel wire grid mesh to be laid out for planting season later this summer.

He is making rows of miniature greenhouses, but on an industrial farming scale. He's contacted several places on his own here in China, but he's not getting anywhere fast enough because it all has to be delivered by July. We talk for a while and make a plan to get his factories to finish their quotes and ramp up their production. Then it's time for me to take to the road.

Situated three hours drive south east of Beijing, on the coast of Hebei province, sits An Ping. Leaving Beijing, you drive past the glittering Olympic structures and acres of call centers, office buildings and hi-rise apartments. The last major billboard you see is one where Jackie Chan is inviting you to live in a new residential subdivision on the outskirts of Beijing. An Ping, though, is beyond the glossy reach of a 20-foot-tall Jackie Chan, and way beyond the charms of consumer-friendly Beijing. More than just few hours' drive deep the into flat, wheat fields of the country side, a visit to An Ping is to take a journey into the periphery of modern global capitalism.

It is an example of what happens when you mix the extreme dimensions of late nineteenth century steel production techniques with twenty-first-century global communications and a seemingly infinite pool of low-cost labor.

Steel wire and wire products have been at the forefront of global capitalism since their inception. Technical improvements in the United States during the 1800's made it possible to draw long strands of strong, consistent, high-quality wire that could be woven and twisted. Enough of that wire was produced to circle the globe countless times and eventually led to the series of long and bloody range wars that were fought over the right to fence property with what became known as barbed wire. The eventual succession of the American west to "parceling" land by barbed wire fence forever changed the culture and land management practices in the United States.

Easy rail transportation and 30 years of unabated demand for steel wire products also gave rise to some America's biggest industrial monoliths of the era where names like Carnegie and Mellon were upheld across the land as giants of industry and wealth.

The world has since moved on, but the need for wire and wire products remains as strong as ever. And while automation, robotic welding and other techniques have to come to industry, many of the techniques and practices for working with wire go back well over a hundred years. Still, the more things change, the more they remain the same: Much of industrial processes used to make wire fence and wire mesh continue to be labor intensive work.

At first glance, An Ping appears to be a chaotic series of roads, all filled the same 500 square meter workshop yards, a scene that is repeated again and again. Each shop has crews of men bent over welding grids of wire. If you drive in any direction, you're sure to pass hundreds of work yard shops like this while making your way out of town. If you drive west, you pass hundreds of shops until you get out of town.


But what appears as chaotic and incomprehensible on the ground is really a very efficient production network of individual job shops that is organized, in viral terms, by cell phones, text messages and the Internet. Into this network, amorphous cadres of sourcing agents for global and domestic sales pour their demands for steel wire and mesh work. This is all supported by a transportation infrastructure and steel mill technology built during the last era of fully state-controlled economic planning.

Hebei was the recipient of heavy industrial investment in the 1960's and 70's. While many of those steel mills are now considered inefficient, dirty and not up to world standard, they are very capable of producing large quantities of wire, the composition and basic requirements of which have been the same for about 200 years. In the case of An Ping, sometimes you don't need the world's best equipment to be the world's largest supplier.

But unlike the old days in America and China of big steel being organized around a single, corporate or state-owned entity, or so-called "factory town," An Ping is a network of thousands of job shops, distributors and suppliers, all of whom scale up or down to fit whatever job is at hand. Common scenario: An order comes in, 20 job shops go to work, another order comes, another 30 start, the order changes and five lose their chance to work Without a doubt, the Internet has added a wild card, an almost win-the-lottery mentality, to the overall work and operations of any given shop. Now, a big order can come to any shop with a Web site.

No longer is it just the larger shops that can parcel out work because of their sales force and ability to sponsor a travel budget or inventory steel. The global lottery is there for anyone who gets the call, who can respond to the inquiry and who can organize and finance the work and material orders. In other words, today's small job shop may be just one email away from becoming a big player. It's an enticing prospect for newcomers and an almost intoxicating happening for the very few that can get a lucky break of a sizable order.

The new-found prosperity of An Ping has been hard-earned. Seeing workers welding beneath an umbrella in the pouring rain is not uncommon. For most workers, learning English and owning a computer seem impossible dreams for the present. Though far better than it was before the work came, life still remains hard in An Ping, and every worker's tanned face shows a lifetime of physical toil. But most prefer it to the farm, and there is, for the first time ever, a chance for disposable income to save for a child's education, to visit relatives in another city, or maybe even to own a motorcycle or, someday, a car.

But even An Ping, which has gone from nothing to a world production center is less than a decade, has found there is a limit to the sky. Last year, for example, when metal prices in China spiked 30 percent above the world market, work came to a halt. More competition is coming, too.

Other depressed industrial areas in northern China have noted An Ping's success and have started their own wire production areas. Likewise, the RMB has gone up in value, diesel fuel costs more for shipping and Indian wire is finding its way to market as well. In large-scale projects, where labor costs less (relative to material costs), An Ping still finds fierce price competition from very efficient American and European producers, as was the case for my American farming client who bought wire both in China and America.

With its fragile beginning and hard fought emergence, An Ping sits at the very forefront of what's happening in the countryside of China's economic revolution. How An Ping finds a way to hold its few gains and keep moving forward to increase the skill and labor value of its people will be the story of non-urban China's development in the coming decades.

Feel free to send your comments to sourcing@eigworld.com or visit our website at www.eigworld.com

Other articles by David Lindley

• Negotiation strategies: Just how are prices set?
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From

While the importance of controlling the quality of the products coming from Chinese suppliers is now obvious to most international buyers, questions remain on just how to do it.

Testing plan

First you need to think about what exactly you want to control. It is ideally coming from your own definition of what is critical for your products and your business. To help you with defining the test plan, try to consider what are the past quality issues you faced, ones that brought you to call for inspections; or go through the specifications of the product and pick the ones that could have the greatest impact on your customers. Keep in mind that the inspection plan should be made in line with what is at stake: the value and criticality of the product. Obviously, you might not want to test rolls of paper tissues as extensively as medical respiratory equipment. A typical testing plan includes several cosmetic and functional items to check, with pass and fail criteria. Most of them will be based on visual checks or basic instrument measurements (ruler, caliper, weighing scale, etc.).

Professional inspection companies should be able to assist you in defining your test plan, according to the industry you are in, the profile of your customers and, of course, the type of product you source from China. By experience they know what to look for specifically in toys, IT equipment, raw materials, textiles and automotive parts, for examples.

Your inspection plan should also cover the expected confidence level you want to achieve. It is usually defined in percentage of defects you can accept, using the standard statistical AQL (Acceptable Quality Level) approach. An AQL level of 0.4 means you accept to receive a shipment with potentially up to 0.4% defects (that means 99.6% good). 100% confidence can only be achieved by 100% testing, the AQL approach greatly reducing the number of units to be tested (to around 5% to 10%) and the associated costs.

Inspection location

Once you have your inspection plan in hand, you need to define where to have it performed. Unless specific reasons dictate, inspections should take place at the supplier's site, after production is finished and before products leave the factory. That is where you can get the highest benefits in terms of reaction time and cost. If you are on a very tight schedule, inspections can also be performed during the production cycle. Inspections at a later stage, before loading at the port of departure, or even upon arrival in the country of destinations, are quite specific and can be justified for various reasons, like sensitivity to transportation, impossibility to access the manufacturing site or consolidation with other materials, availability of special testing equipments.

Planning and ordering

Take into account that an inspection company needs a few days to organize themselves to validate your testing plan and send inspectors to the supplier site. The sooner you do it the better, but not later than two to three days before the expected date for shipment from the factory. Finalize all arrangements beforehand.

Before placing an order, make sure that you have your detailed testing plan defined and that you know the total quantities to be shipped, the expected shipment date and the exact location (detailed address and contact information of your supplier). This will have to be communicated to the inspection company, who will confirm the booking price, for you to make your final decision. Most shipments just require a one day inspection, but it all depends on the number of samples tested (AQL level vs. total quantity) and the number/complexity of parameters to check (testing plan), it should be confirmed to you in advance by the inspection company.

If you have a business with a continuous flow of shipments from the same locations, a specific organization can be set up to support it and, thanks to economies of scale, costs can be contained.

Inspection report

After the inspectors go on site to perform their duty, you will quickly receive an inspection certificate with administrative information and the results of their findings: how many units they checked, what results they recorded and whether the lot(s) pass or fail. The ideal way is to hold the shipment until you receive the report, so that you can decide if any containment actions are necessary prior to shipment. Therefore, add on one to one and a half days to your regular schedule before shipment to allow for inspection. You should keep the records of the inspection reports for future reference.

Relying on an independent party to inspect on your behalf will not only help you to control your costs. It will also bring impartiality, efficiency and peace of mind in your relationship with your Chinese suppliers.

By Nicolas Binse*

nicolas.binse@cotecna.com.cn

(*) Nicolas Binse has spent over 10 years in Procurement and Supply Chain dealing with Asian and Chinese suppliers for international companies like Philips and Hewlett-Packard. His previous achievements include selecting and developing suppliers manufacturing in China, setting-up a quality management organization based in Hong Kong, and making strategic supply chain network recommendations for Asia Pacific operations. He is currently managing the consumer products combined audit, inspection and logistics services for the joint venture between Sinotrans and Cotecna in China.

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• Export-quality inspections
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By David Lindley
President, EXIM LLC

One of the challenges of working in China is the national holiday system and coordinating a work schedule with your customers around national holidays.

The three main national holidays are the Chinese New Year (also called the Lunar New Year), May Holiday and National Day in October. Unlike many western factories, where the holiday schedules are staggered to maintain operations, holidays in China mean something else: Factories often close completely to allow workers to go home to be with their families.

Combine that with the fact that most European and American holidays do not overlap with Chinese holidays and you have a situation where production schedule management is critical on both sides.

If you think about it, almost 40 percent of the year is taken up by holidays and weekends when China isn't working, the west isn't working or neither side is working. Combine that with time differences and it's no wonder most everyone here in China starts to feel pressure just before a holiday starts.

The numbers add up, so strategies for managing holidays call for planning. A few tips:

1. Westerners often need to engage in expectation and sanity management around the Chinese holiday time. Pressure concepts like: pay a higher price to get some overtime work, or "they just have to work or we'll lose the contract," simply do not apply.
2. Plan the entire year with the holidays in mind.
3. Think not only about the China holidays, but also about what holidays you need to be aware of in your home country or in foreign markets.
4. Be clear on terms of operation. Many contracts will include a definition of "work days" a factory should follow.
5. Plan to have what ever you need done, quoted, shipped, packed, inspected, produced and/or delivered to be done the week before the holiday knowing that every day you go closer to the holiday you are living on borrowed time. Take the attitude that what you get done in the week before the holiday is really not early.
6. Communicate clearly to your customers that there is an upcoming holiday. Do not just assume they will remember the holiday time frame here in China. You might also stress the importance of holidays and traveling to be with family here (particularly the Chinese New Year).
7. Make sure your factory is taking care of you before the holiday. If your business uses workers who are paid or receive a bonus for piecework production, those workers may leave for home earlier than salaried workers. So administrative staff may be available, but work may slow or stop in the days before the holiday. If progress is slow and there is pressure, be sure your order isn't the one that gets bumped for completion after the holiday. A good relationship and pre-holiday visits to your supplier can help avoid this problem.
8. If your shipment date is just before or during a holiday, be sure to allow extra days for it to clear and be processed through customs. Customs officials do work right up to and through a portion of a holiday, but the pace slows significantly.
9. Getting shipping papers, buying quotas (for textiles) and VAT rebates all slow normal processes of business before a holiday.
10. If you are trying to clear a letter of credit or a wire transfer you will need extra days just before and after a holiday. Domestic transactions can be cleared over the holidays, but international transactions are more difficult to complete.
11. If you are traveling in China during a holiday, remember that it can be more crowded, expensive and slower than normal.

The national holiday system in China is a fact of life. Love it, or hate it, you have to deal with it and like most things the rule of the 5 P's applies: proper preparation prevents poor performance. Meet these challenges ahead of time and your production and shipments are unlikely to run behind.

Feel free to send your comments to sourcing@eigworld.com or visit our website at www.eigworld.com

Other articles by David Lindley

• Negotiation strategies: Just how are prices set?
• An American buyer offers insights on avoiding trade fraud in China
• Business dinners in China mean more than mere entertainment

by Tekle Sebhatu

Question:

Hi, could you tell me how to get into freight forwarding? What criteria or qualifications do I need to do this? Thanks.

Answer:

A freight forwarder is an agent who handles export shipments for a fee. Freight forwarders play a very important role for exporters. Here are few of the many activities that you will conduct as a freight forwarder:

• International documentation and packaging
• Carrier and routing information
• Export license assistance
• Marine insurance rates and coverage
• Warehouse and distribution services
• Hazardous materials shipping compliance information

You should check with your local government authorities on what is required to be a freight forwarder in your country.

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View Tekle Sebhatu's profile here.