China’s power crises and how it affects sourcing in China! [Podcast ep.039]
Learn more about China’s power crises and how it affects sourcing in China!
Click above to listen, and scroll below to read a full transcript.
Hey guys, today is a real treat!
I am interviewing an expert on China sourcing, and it is a great honor to get access to someone with this much experience in China because the big brands usually hide these guys in the background.
Chris has worked with every major brand. To name a few; Blendtec, Honeywell, Breville, Cuisinart, John Deere, Medtronic, Binske, Garmin, Storm Kimonos, Adidas, and so many more.
Today we will be discussing with him a range of topics;
- What are the current challenges of China’s power problems?
- Where and why are companies moving manufacturing out of China?
- Is China still the best place to source for small businesses and small purchasing volume?
- What product categories are the best sourced out of China?
- Can you save more in other countries?
- How and why should we move production from China?
- Is there a mass exodus from China manufacturing?
- Interesting anecdotes and tips from Chris on dealing with Chinese suppliers.
I hope you enjoy the podcast! Remember to schedule your free call today with our team on the ground in China. You can discuss any sourcing issues or manufacturing needs in China, no matter how big or small.
Have a great day!
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Listen to all our podcast episodes here.
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Welcome to the Global tqm.com podcast where we teach ecommerce business owners how to source the best products from China, negotiate with Chinese manufacturers, navigate Chinese business culture and grow your business to seven figures and beyond. David Hoffman is the founder and CEO of global TQM. Calm your team on the ground in China.
David | GlobalTQM 0:22
Hey, guys, welcome to this week's podcast. Today's a really great session. We actually interviewing a very good friend of mine, Chris, who is an absolute expert ninja at sourcing in China. And he's been responsible for moving production lines from China to other countries, as an industry is in touch.
So I'm hoping to get a lot out of this. Hey, Chris, welcome.
Hey, how are you?
David | GlobalTQM 0:44
Very good. How you doing? Oh,
busy, dude. Busy. Yeah,
David | GlobalTQM 0:49
I know, I know, a lot of projects going on, and we'll touch on him a little bit. So crystal, just for the benefit of our listeners, I'm going to give a bit of background to you. So Chris has been a sourcing ninja for the last 15 years in China.
And he's worked literally with every major brand you can imagine. From Blendtec, Honeywell, Breville. Cuisinart, John Deere, Medtronic, Pinsky, Gorman, Storm, Adidas, and the list goes on and on. So whether it's garments, sports, electronics, mobile phones, medical electronics, home appliances, kitchen appliances, there's almost no product category that Chris has not touched.
And he's humbly laughing because he knows that's true.
David | GlobalTQM 1:32
Chris also has a bachelor's degree in technology, culinary arts, and a bsme, Business Marketing economics, and does everything from product design, to building production lines, supply chain, quality processing, and also moving production lines from China to all areas of the world. Chris, that's a mouthful. You must be a very busy man.
Yeah, yeah. Well, at least you have to rely on some of your teams to also assist your needs, which is very critical and very important to do.
David | GlobalTQM 2:04
I'll bet. So Chris, I mean, you know, I've had many chats, and I thought would be some some really interesting topics I want to touch on and get your perspective, because you're in the thick of things you're eating, breathing and sleeping with stuff every day. And a lot of people get their information.
Third, fourth hand from articles I read from information. So I thought, what better idea, they just bring it straight to where the action is. So I'm going to shoot for some questions. Sure.
So everybody's reading about these challenges of power problems in China. Can you give us some kind of context? Is that real? Are you feeling that in production? What's causing it? Tell us about that? What's going on?
Yes, it's very real and very clear. The struggles of power is very transparent. Especially while we see it here on the ground, the current challenges are found around production, the power grids are being directed toward major cities in preparation for the winter months ahead. But also, the lacking is the direct source of the lack of coal power, in the hydropower dams, which have been dramatically affected over the past couple of years, which the country really depends on that that power source, which will be a very major hurdle, as these months are going on.
So in turn, well, in turn, the power being resulted to move over to my major cities is basically to to keep its citizens warm. It has an effect, because most of the production or supply chain or factories are in the rural areas. So the power from that area is being driven toward the cities.
David | GlobalTQM 4:05
So what happens to people in those areas that just get no power? They just get shut down? What do you actually see happening on the ground of factories coming to standstills? What is the government saying? How are those people meant to survive? Is there a plan? I mean, it sounds like they would know this information? Do they audit or they just ignore this information? Or is there some broader plan we're not aware of?
Well, there has been a lot of leaflets being passed around to manufacturers and supply chain to give the notice of the power is being converted. But the major effect of that is the manufacturers and supply chains. Their normal work week has moved from a six day week down to a two or three day week, which is very significant for any work producing products in China.
David | GlobalTQM 4:53
I mean, hence the delays right. I mean six day a week to three day weeks, delays, lead times and problems Imagine consistency of staff as well.
Yes, there's been quite a bit of craziness in the past couple of months. But if you have very large volumes of products, no problem for you, you're being moved ahead in the line for production. But if you have small, smaller builds, or medium sized, you're going back back in the line. So many times are pushing, you know, double, if not triple of what they were prior.
David | GlobalTQM 5:35
And is that just because they taking on a more profitable on larger orders, or it's just less work for them to get more consistency out of producing it? With or combination ready,
it's quite of a combination. But China in general, has been pushed more toward larger builds. That's the main focus now for China is big orders. Big orders come first? Right.
David | GlobalTQM 6:05
I think I think it's kind of always been like that to some degree, except I guess now with time constraints and power constraints. There's less tolerance for for things that just don't suit them as a manufacturer.
Yeah, but it's the same time with these manufacturing supply chain issues. It's basic economics. If you have a very low supply chain, and a very high demand for you know, your raw materials, or components, your electronics, that price, because you're you're working from a six day down to a two or three day, that price has risen by 40%. Wow,
David | GlobalTQM 6:47
said is a 40% price rise. Is that just on the manufacturing costs in China? Or is that on the raw materials? And everything in between as well? What are you finding and see?
It's mostly based on the supply chain? The parts, mostly on the parts up to 40%? In some areas, text only increased by 20%. But for electronic base 40%. Well, yeah, I
David | GlobalTQM 7:16
mean, we said he feeding it in our business, not always up to 40. But I mean, we definitely feeding price rises all the time, and we kind of finding the name of the game isn't necessarily fighting for the profits finding the production space. That's correct. Taking priority,
as long as you have those volumes in place. You should be fine. But you're still going to deal with the cost.
David | GlobalTQM 7:37
Yeah. And I mean, that kind of leads me into the next question. And there's two parts to this question. You know, number one is, what is the long term manufacturing future for China and their goals as China? And where are companies moving to outside of China? And that's a field I want to go deep into with you, because I know you have a lot of hands on experience facilitating a lot of it. So maybe let's start with the first part.
Shoot the question.
David | GlobalTQM 8:06
Yeah, for the first part was what is the long term future for manufacturing in China? I mean, as you see it, and as maybe what you're aware of from, you know, the policies that are being put in place and the goals of government and industry?
Well, that's a very interesting question, because the long term, what I can forecast, the long term goal for China is really just large volumes. It's just big money involved. If you're a smaller size company, maybe not a good choice to focus your efforts in China. While there are so many new startup companies or locations are being primed for small business.
But I can't say you're going to have to rephrase the question to me again. Yeah.
David | GlobalTQM 9:04
No. Okay. I feel like you've answered the question, actually, Chris. I think maybe it's the second part of the question is, where is manufacturing moving to them for these smaller orders or other industries? And what are the areas people should be looking at? And does it depend on categories? You know, tell us what you see.
Well, as far as like many of my manufacturing costs in materials labour assembly, we've moved to areas like Vietnam or Malaysia or Indonesia because the cost is very beneficial not just for materials or Labour or assembling the overall
David | GlobalTQM 9:50
how about shipping customers areas are those better or worse?
well yes shipping costs right now. It's it's pretty much in the same market now for Even like for China's everyone's in the same loop due to these container issues in the market now.
David | GlobalTQM 10:06
it's just a big problem. But if you're shipping products, say from Vietnam to USA, it's a little bit less cost. And you're paying around zero that if all the product all the materials are produced in Vietnam 00 duty, yeah. Which
David | GlobalTQM 10:26
is a lot of trade agreements. And I know the garment industry, that's been, you know, thing for a long time. So Christy has a question for you, a lot of people are gonna be thinking this, would you say that just about every product category, think homewares Gorman's electronics, toys that goes on? Would you say all those product categories could be sourced out of China now in small quantities? Or would you say it's just it's kind of a migration still, and it's to certain areas are good at certain categories? It's not quite there yet.
Those categories, I would suggest, yes. are moving out of China. If you're a smaller size for these toys, fabrics, anything, yes, Vietnam, Malaysia, Indonesia, are the key countries that are leading the charge. Now, Malaysia just for an example. They used to be a very big size assembly manufacturing club, you know, they've done mobile equipment, they've done home electronics, they were your contract manufacturer. Until maybe a few years ago, it all boiled over to China. But now with all the costs being driven, it's moving right back out of China again. So Malaysia is very good for contract manufacturing, electronic parts. But everything else I would highly suggest, Vietnam and Indonesia. Yeah.
David | GlobalTQM 12:01
All these all these manufacturers in these countries outside of China, are they the Chinese manufacturers setting up operations, there are these brand new startups and entrepreneurs that are just seizing opportunity. And possibly they're also relearning an industry that the Chinese have probably been in for many, many years and perfected to some degree.
But this is a very funny topic, because I actually discussed this a few days ago with some of my manufacturing buddies, which are also Chinese manufacturers, which are moving out to China, into Vietnam. But they are going to keep their cost structures that were as of a few years ago, which is not very significant, or competitiveness, compared to other companies in Vietnam, but at least they can take existing products, move it over to another area make more profit margin. Yeah. That's just the end result. Yeah, yeah. So
David | GlobalTQM 13:05
I mean, if I had to kind of quantify it, would you say that I know, I'm just putting it out there. Maybe you don't know the answer, which is fine. Would you say, of all the manufacturing bad money China, because I try to keep things in perspective as well. You know, we've got a client base, we've got 100, on Amazon sellers, we've got online sellers and entrepreneurs, we've got retail stores that are bringing their own private label products, we've got a very mix of base of customer customer base, and to give it in perspective for them, that caught all rush to countries outside of China, per se, but I could start looking at it right. So would you say kind of 10% of production is moving out 20% As we stand right now, you know, maybe is going to increase over the next 2345 years. But as it stands right now, would you say? Still, it's 90% being produced in China 10% outside and growing? Or is that really hard to determine?
It's a little hard to determine. But I can say for example, around 85% is still manufactured in. But it really depends on the type of categories. If you're looking at more of a home wares or housewares type of products, appliances, electronic based, are still being made in China. That's true. But they're slowly moving out to China to be focused more like say, Vietnam, because Vietnam you can save 60% in labour costs. Wow. quite critical. And the majority of material based fabrics polymers, silicone latex is very known for Vietnam already. So if you have those key parts in place, and they do their own dye house in Vietnam with no issues, that's the place to go. So that's where I I have personally two years ago, started making the change, because I can already forecasts and foresee what's happening in China. It's very good to start doing your due diligence and start moving forward.
David | GlobalTQM 15:05
I think that's a great point actually, that that that's a that's a great piece of advice is, it's not something you switch in one day on, it's certainly a couple of months, you start researching now and do your homework now and finding out what's available, what pricing is a getting to know manufacturers, so that you ready for this transition, and you testing samples, you know, maybe doing small Trial orders before just making this rapid, you know, jump over, you know, it's almost like finding a new supplier. I mean, that's basically what it is.
Yeah, absolutely. You have to do your research, you have to do what fits you best for your product and your market. You have to do it. If you don't do it. Now, if you just jump ship and just restart somewhere else, it's going to be a difficult journey. It's going to be a much longer quality issues or things that you cannot forecast. Yes, good to start, do it slowly, and then work your way out. It's very
David | GlobalTQM 16:00
things that make sense. I think sometimes people get blinded by the cost saving, they don't kind of factor in the cost of mistakes, the cost of quality problems, the cost of the learning curve, if you get it wrong by just the dollar prosiding.
Right. That's true. You can easily get blinded. But the dollar savings? Yeah, yes. Very good. Do your due diligence before jumping ship. Chris, that's fascinating. Chris,
David | GlobalTQM 16:26
I don't want to take up too much of your time. And I appreciate it. I mean, it's incredibly good advice. While I've got you here, any cool stories or little tidbits you want to share about your dealings in China, that might be interesting. If you don't, that's fine, too. So maybe throw it out there. See the funny story, good lessons learned.
There's only a few things that I would say about. China, just in general, but they're they are a good producer of manufacturing products. But as a note, do not take promissory notes based on quality and production. You must have your own team on the ground to do those jobs, and to have clear communication moving forward. Or there'll be some not so great things that will pop up.
David | GlobalTQM 17:20
Yeah. I've got a philosophy to that. I couldn't agree more. It's inspect what you expect, right? You've got to see it. You've got to see it with your own eyes. That's very true. Yeah, you're dealing with people, right? And people make mistakes. And the tension is there promise, you know, there's an intention. But it doesn't mean it's going to be fulfilled. And it's your responsibility to check it and not pause, play later.
Yeah, and also be aggressive. Because if you're not, you will be you will not be respected the way you want it to be. And you will be taken advantage of by quality by cost and lead times.
David | GlobalTQM 18:00
Yeah, that's great advice. And and to that point about being aggressive. I also think it's important to if you can be a lot more aggressive, if you're a lot more clear with your requirements upfront. Well, yeah,
I only say be aggressive, because it's just a very common lingo in China, because it's, the language itself is very aggressive. You're not showing aggression, being you're not going to be treated the same or are being respected in that way. If you're just shy and you're shallow, then get taken advantage of your costs are going to jump up your quality is not going to be what you expected. Right? You have to be aggressive. Right.
David | GlobalTQM 18:40
And, and I mean, in agreement, that being aggressive before about your requirements is critical, because it's hard to be aggressive afterwards, if you haven't been clear about what you want, because then it just becomes a loss of trust, right? They don't want you never actually asked for that you never specified that. You know, you feel like you don't have been in a debate whether you asked for it or didn't ask for it. It's easier to be more aggressive or assertive. When you were really crystal clear about what you wanted, and we didn't leave areas of ambiguity.
That's right. Be clear, be transparent. And take the action. Don't do it. Yeah. Chris. That's
David | GlobalTQM 19:19
amazing, fantastic news and information. And I'm going to be watching closely what China do with their power grids and power problems. And they must be a long term plan. I mean, they're highly highly educated, advanced governance, in many respects, so presumably, they must have some game plan out there. I don't know what it is.
Yeah, they should have. But as time progresses. As time progresses, there will be an interesting story to watch. But that's that's fine, because I've already moved out the majority of my productions.
David | GlobalTQM 19:58
So if you made your choice already,
like I've done, I'm not going to take the risk. I'll keep the risk as far as if I have large orders, and they can do it based on our needs. But if any other additional major changes have been placed, is no worries, I've done my due diligence, and I suggest everyone else to do the same thing. And
David | GlobalTQM 20:22
you kind of hate. Yeah. So you're hedging, you're hedging your bets and have to production of facilities and options and, and basically have alternatives.
Always have a backup plan. If you're in engineering, that's, that's the basic 101 Always have plan A, B, C, D, and E. Just keep it going.
David | GlobalTQM 20:40
Yeah, yeah. No, I agree with that. And spending that time doing that background homework and research, even if you don't end up using it is critical. Because when you do need it, you know, you've already done that works really fast steps ahead, I
feel. Absolutely. Yeah.
David | GlobalTQM 20:58
Well, Chris, that's great. Thank you so much for your time. Really appreciate it. And hopefully, if we get some questions, maybe we'll have you back on and we'll answer some more questions. Let's see what comes up out of this.
Any time, any time, right. And for those of you
David | GlobalTQM 21:10
listening, don't forget, you can schedule a free consultation call with us at global tqm.com where you can meet your ground your team on the ground in China and you know, anything you want to discuss or talk through with us. We're here to help you. Take care guys.
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