Middlemen Outdated, Building Trust with Suppliers is Crucial [Podcast Ep24]
This week I was interviewed by Jim Palmer from Dream business radio. I thought you might like to listen to the interview… you might pick up some good advice, insights, and pointers…
Of course, we spoke about sourcing from china, services available in china, how doing business in China works..
Hope you enjoy it…
Just some of the questions answered:
How entrepreneurs expand businesses.
How do you find ideas in China?
Do you have to go to college to learn the business?
What are the biggest challenges for importing products from China?
Why middlemen/agents are outdated.
Some intellectual property tips and building trust with suppliers… we went deep!.. (actually more than just tips, we went deep!)
Want to know how we can help? Schedule your FREE Call!
Jim Palmer: 00:35
Good afternoon, everybody. This is Captain Jim Palmer and I am the Dream Business Coach. I have a fantastic interview for you today from somebody I talked to who’s pretty darn far away, but through modern technology, it sounds like he’s my neighbor, David Hoffmann. Let me introduce you to him.
David as a serial entrepreneur and building multimillion-dollar companies. He has led the international trade powerhouse Global Regency shipping products to the US and all over literally 40 countries. He’d been a CEO for 15 years. He’s considered an expert in China outsourcing and sourcing everything you want to have made, so really quite a topical conversation, I would say.
In 2016, David launched GlobalTQM under the Global Regency umbrella after he saw an incredible opportunity by helping friends and family to assist SMEs, startups and entrepreneurs with quality management issues and sourcing from China with a range of educational and mentoring programs and actually provide done-for-you services with his resources of 57-plus people in China. I know with an entrepreneur, you can definitely lower your cost by having stuff made in China, et cetera, but I know a lot of people who actually are very fearful of that, so I’m really excited to talk to David.
Jim Palmer: 02:00
David, how are you doing today?
David Hoffmann: 02:01
Hi, Jim. Good. How you doing?
Jim Palmer: 02:04
Good. Yeah, buddy. We got a clear signal right through… I don’t know if we’re in space, you’re going under the ocean floor, so now we managed to sound pretty good.
David Hoffmann: 02:12
Yeah. As you said, it’s amazing, right? With technology, there’s almost… It’s a borderless world now.
Jim Palmer: 02:19
I’d love to get just a little bit of background. Where were you born and did you go to college before becoming an entrepreneur? What led you down this crazy path.
David Hoffmann: 02:30
Yeah, it’s a great question, Jim. I was born in South Africa, if you can tell from the accent. It’s a bit of a giveaway. I left Hong Kong at the… I’m sorry, I left South Africa at the age of 25. I was working for a big retail group and I left. I came over to Hong Kong really with the ambition of coming here for one year, just for the experience and then moving on to Australia, which was my ultimate destination.
David Hoffmann: 02:57
Sixteen years later, I’m still in Hong Kong. I just got sucked up by the business life and business environment here. The entrepreneurial flair caught me and here I am.
Jim Palmer: 03:12
Have you always been into the import-export business or that’s just something you learned along the way?
David Hoffmann: 03:18
Yeah. Jim, in South Africa, we were in that business. We were actually importing consumer electronics for our own retail stores. That’s really what we did.
David Hoffmann: 03:27
When I came out here it was with that goal to expand that. Once I’ve got here, things… just started realizing there’s so much more opportunity. That kind of led me into really growing and expanding the business from a team of two people to quite a large organization.
David Hoffmann: 03:48
It also laid the foundation for me to start a lot of other businesses and other companies around it because we’ve kind of always had this core hub of access in China to sourcing and to manufacturing.
Jim Palmer: 04:06
For someone like me, for someone like you, this is what you do, but it seems like such a complicated thing. I mean, I know they make everything in China.
David Hoffmann: 04:16
Yeah, they do.
Jim Palmer: 04:17
How do you find a place that’s reputable, that’s not going to steal your idea? How do you manage quality unless you’re going to have somebody living over there? I mean that’s kind of the scary thing for an entrepreneur like myself.
David Hoffmann: 04:29
Jim, that’s a great question and I think that’s actually the very reason that brought me here, was just for our own companies, just managing our own quality control and dealing with our own suppliers and manufacturers. I mean, really getting to know them and understand them and deal with all the hurdles that come with it.
David Hoffmann: 04:52
It’s really through that exposure and journey that I started helping a lot of other people do it because you’re right. A lot of people want to do it and everything is made out here, but there are a lot of hurdles. There’s language barriers, there’s cultural barriers and differences that matter and there’s just that distance of doing business. I think doing business with anyone is probably very similar in most countries, but the distance creates more of a barrier and the communication issues create more of a barrier. So there’s some understanding differences and it just takes time, really.
David Hoffmann: 05:29
I think you mentioned something really important earlier about protecting your ideas and that’s really challenging out here. There’s a lot of counterfeiting, a lot of copyrighting. I do a lot of talks actually on registering your trademark in China, which is something I try and recommend everybody does for a host of reasons. But, yeah, it’s just challenging. It’s knowing your manufacturers, it’s having the right documentation in place. If you have IP like trademarks and patents making sure they’re registered in China and just learning from a lot of mistakes.
Jim Palmer: 06:04
Is that something you learn? Did you go to college for that? Was that like an apprentice situation? Because that’s a lot of knowledge on a lot of different things. How did you get there?
David Hoffmann: 06:15
Jim, regrettably, I wish I’d learnt it. Unfortunately, I learnt it the hard way through scars and battle wounds. But, yeah, I suppose those are the best lessons learned. I had been fortunate I’ve had mentors in my life and business, bosses who became business partners and mentors throughout my career. So, it’s just really learning the ropes as you go through these things and making mistakes and learning from them and recovering from them.
Jim Palmer: 06:49
David, what do you see as some of the biggest challenges for somebody outsourcing their goods from China?
David Hoffmann: 06:56
I think it’s knowing who the manufacturer is or isn’t and controlling the quality. When you try to do these things online, there’s a lot of trading going on, there’s a lot of middlemen and brokers in between, agents or just companies representing themselves as manufacturers. It can really make it complicated and because you can’t actually be there on the ground, it’s very hard to manage the quality and have all your expectations met. I think that those kind of things are the most challenging, is finding the right manufacturer that can produce the right quality consistently. That’s just a lot of time and effort and homework.
Jim Palmer: 07:43
Do you act like the middleman, David? In other words, does someone come to you and say, “I need to have this made,” then you use your connections and sources? Is that how it works?
David Hoffmann: 07:55
It’s a really good question. Not exactly. That kind of middleman concept, I think, is quite outdated now. It has traditionally been a business model for many out here in the East.
David Hoffmann: 08:11
What we’ve done with GlobalTQM and it’s kind of one of my real reasons for starting it, is that in order to be successful in an e-commerce business or in any kind of product business, I’m really a firm believer that the buyer, which is you, has to have the relationship with the manufacturer. Because I think that direct relationship, that direct contact really ensures that you don’t have a lot of problems and that you’re building a positive relationship because it’s really important to have a strong relationship with your supply chain.
David Hoffmann: 08:44
What I’ve done is I’ve really restructured the way we do things and, that is, we provide services on the ground, so we facilitate it. We introduce you to manufacturers, we make sure you know how to do your documentation and paperwork correctly. We make sure you know how to do your quality checks. We help you visit the factory, if required.
David Hoffmann: 09:02
But it’s really important for us conceptually and just as a personal belief that the buyer always owns the relationship with his supply chain. I think that’s really, really important. They just need some guidance along the way.
Jim Palmer: 09:18
David, talk a little bit about intellectual property protection. I mean, it’s in the news a lot, but it’s also one of the things you’d think if you’re dealing with a supplier in another country, another time zone, a language barrier, all the different things that go into it, how do you protect yourself from that? Then also how do you establish enough trust to be able to have somebody make your stuff?
David Hoffmann: 09:45
Yes. It’s a common question and a multifaceted answer. Trust is like anything in my view. It doesn’t matter how culturally different you are or how far apart or close you are. I think trust is something that’s built over time, right? Relationships prove themselves and people and companies prove themselves over time.
David Hoffmann: 10:12
I don’t think that’s any different here in China. I wouldn’t go to a factory that I’ve just met and offer them all my ideas around IP and stuff and ask them to quote on the product. You build a relationship slowly. Over time, you’d see their size, their scale, what else they’re doing and you understand the management team, their management philosophy and you’d form an opinion on the trustworthiness. That’s just kind of relationship-building.
David Hoffmann: 10:40
But in terms of actually protecting your IP, there’s a couple of things I always recommend. One is if you’ve got patents or trademarks, I always say register them in China no matter where else you register them and I’ll give you a really good example with trademarks for example. I’ve had a lot of friends actually that I’ve helped and just even customers that I’ve helped that have had their trademarks registered in other countries and they think they are protected.
David Hoffmann: 11:14
But we know once the manufacturer has seen them being really successful, they’re going to register the trademark in China as a manufacturer and started selling it locally in China under the same brand name, which have kind of become a problem because if they’re selling online on the e-commerce stores, people just search and find it. So I’ve always said to people register your trademark in China. It’s really low cost. I mean, it’s something that just 100% protects you in China, at least in terms of people copying your trademark, which is kind of your reputation and all the kind of things that go around it.
David Hoffmann: 11:52
Then I say separately, if you do have any patents, I kind of said you kind of look at it cautiously. If it’s very technical type of patents like invention patents and things like that, you probably do want to register in China. If it’s just design patents, I normally say to people the best weapon against that is just being first to market and owning your sales channels and your customers. I think that’s kind of where your brand and trademark protects you and being first to market.
David Hoffmann: 12:25
People rip off all the brands all the time, but people still know the brands because of their customer service, their quality of their product and all those other things that go with it. So I kind of always say first and foremost, register your trademark so that your name is distinguishable from anybody else who’s copying a product and then own your sales channel and then the patents, in my view, are always third in line on those things. But it’s a sum of all those things that come together. It’s not a foolproof system.
Jim Palmer: 12:57
Great. I’m going to expose my complete naivete on this subject [crosstalk 00:13:02].
David Hoffmann: 13:02
Jim Palmer: 13:05
I’m sure that registering a trademark in China is completely different and separate from a trademark in the US, right? One, a trademark in the US doesn’t have any validity in other countries and same thing with the China trademark. Is that true?
David Hoffmann: 13:20
Yeah. It’s a little bit deeper than that. There is what you call an international trademark that you can register and a lot of the countries comply to it. In theory, how it works is if you register your trademark in the US, you theoretically have one year to register in other countries like China. But that’s in theory.
David Hoffmann: 13:44
In practice, what actually happens is China works on a first-to-register concept, so the first person to register the trademark in China is legally the owner. That’s happened to many famous brands, by the way. A lot of famous brands have had to buy their trademarks back. It is getting better and better, but the reality is the clauses are different, so the trademark clauses in China are different than trademark clauses overseas. When a trademark in a dispute because of an international registration is an expensive long time-consuming process, whereas it’s a couple of hundred dollars to register in China. You get your Chinese trademark certificate and you literally can control everything and people think you can’t.
David Hoffmann: 14:35
But the truth is the legal system actually is quite solid in China in that regard. If you’ve got a Chinese trademark certificate and you go to any online platform and tell them to remove a product that’s infringing on it, it’s almost a certainty it will be done. It gets hard if you try sending international trademark certificate with a whole long story about why it should be removed, that the Chinese don’t follow that. They follow their own local laws, so it just makes it so much easier.
Jim Palmer: 15:05
In doing my research for the interview, I know you’ve written on 10 Rules To Do Business In China. We don’t have time for all 10, but can you share a couple of the more important rules for somebody who wants to do business in China?
David Hoffmann: 15:18
Well, I think one of the most important rules is just understanding that we’re culturally different and yes doesn’t always mean yes and no doesn’t always mean no. I think you’ve got to really make sure that what you’re asking for 100% that they understand it clearly because, culturally, the Chinese don’t want to say no to you. If you push them hard enough, say “I need this. I want this. Can you do this? Can you do that,” they’ll say yes. What will happen is they’ll try their best to do it and they may fail. They may not have the capability or they may take some shortcuts in getting there and you’ll feel it down afterwards. What actually kind of really happened was that they didn’t want to say no to you. They thought they’d rather try their best.
David Hoffmann: 16:10
I think just understanding that cultural difference is really, really important and really do your background checks and knowing if you’re dealing with a Chinese manufacturer or a Chinese trading company, not that I think either… Both have got their pros and cons, don’t misunderstand me. But it’s important to know which one you’re dealing with because their level of control over production differs, right, and, in essence, dealing with a third party. But depending on the amount of volume you buy, your experience in a product category, an agent could be a great idea because they might have more buying power, they might have more experience in that product category. So you really have to get to the nuts and bolts of who you’re dealing with.
Jim Palmer: 17:02
What’s interesting to me is also how there’s probably different standards the way things are made. I guess in the States we have something called the US protection, consumer protection, things like that.
David Hoffmann: 17:16
Jim Palmer: 17:17
You have to take all those standards and bring them to your supplier in China to make sure those things are being met?
David Hoffmann: 17:23
Jim, you say you’re not experienced at this, but you’re asking all the right questions. 100%. We call it compliance and every country has got its own regulatory compliance and standards.
David Hoffmann: 17:39
That’s one of the big challenges is a manufacturer, for example, who’s manufacturing for the USA might understand US standards and might have that experience, but they may have no idea on Australian standards, for example. So people kind of get confused and feel, “Oh, but you’re producing so much of this for one market, you should automatically be able to do it for my market.” It just doesn’t work like that. Factories, just like people, have got core competencies and certain experiences based on their customer base and you can’t assume that they know that.
David Hoffmann: 18:17
I really always say to people it’s your responsibility to know your local standards and research them and find out what they are or get people that can help you do that to make sure that when you’re purchasing the product, the factory agrees to produce to those standards. How you actually test and verify to those standards is a whole ‘nother conversation, Jim, but it’s really, really important to be upfront with the manufacturer on those things.
David Hoffmann: 18:45
I’ve just seen it so many times where people say out of inexperience, “Oh, but you’re the manufacturer. You should have known this, or you should have known that you’re hipping to America, you’re shipping to Canada. You know the standard.” But they don’t. They’ll produce whatever you ask them. So if you don’t ask for a standard, they won’t produce to a standard. If you ask for a standard, they’ll either say they can or they can’t. It’s really about being specific.
Jim Palmer: 19:16
I mean, it sounds like and I’ve heard this on occasion, they’ll make exactly what you tell them to make, right?
David Hoffmann: 19:23
Jim Palmer: 19:23
Then if it doesn’t work or if it doesn’t fit some standards or protections, whatever, they’ll make exactly what you told them to make, so I think there’s a little bit of a-
David Hoffmann: 19:35
Jim Palmer: 19:35
… I don’t want to say gamble, but that’s certainly one of the intricacies of working with somebody in another country.
David Hoffmann: 19:41
Correct. As you said, it’s the intricacy, right? You have to have a certain amount of knowledge and experience to work at a manufacturing level, right? Because if you look at any big brand or company that do products and develop their product in China, they’ve got very competent people helping them make sure the standards are correct, making sure the testing is done correctly.
David Hoffmann: 20:07
The first thing people do when I see them negotiating with suppliers is, “Oh, I don’t want to pay $10. I want pay $9. I want to pay only $8.” All they do is push the price down and there’s no conversation over quality or standards and materials and workmanship. So the manufacturer will say, “Okay, we’ll do it at $8 for you.” They feel happy they’re meeting your requirement, but you said nothing about all the other requirements. That’s where the cultural difference comes in, is that what we assume should be done you can’t assume anymore. It has to be very specific.
Jim Palmer: 20:43
Right. Do you have any success stories from some of your clients? I’d be interested. I mean, maybe like a small, medium and large. Do you have entrepreneurial companies? Maybe $5 or $10 million that do this and give some other success stories as well.
David Hoffmann: 21:00
Jim, I’ve got many success stories and I’ve got many unsuccessful stories, too.
Jim Palmer: 21:07
We’ll call those lessons learned, so maybe you could share one of each.
David Hoffmann: 21:10
Yeah, exactly. Exactly. Well, I’ve actually got a very good friend of mine, his name is Kevin. He had a very successful product online that he is selling. His manufacturer actually genuinely registered his trademark in China and were selling it online on Alibaba. I mean, he was just shocked. He was ordering so much and they saw he was doing so well, so what they started doing was they just went and registered in China for two reasons. One, to make him try and buy from them because, in theory, they could stop other manufacturers producing under that trademark, although that’s become harder to do now. But at the time it certainly was the case, then they started selling it in the local domestic market.
David Hoffmann: 21:54
That, by the way, we actually overturned and we won the contest at the trademark bureau. They’ve got investigators that handle these things. But that, to give you perspective, took one and a half years and we actually won the disputes, so that was really, really good.
David Hoffmann: 22:14
I’ve got loads of clients. We’ve got really small clients who are first-time Amazon sellers and we’ve helped them. I must’ve helped bring dozens and dozens of products to market where they’ve just come and said, “Hey, I’ve got this product idea and I found a couple of manufacturers online. Don’t really know where to go and what to do.” In a couple, three, four months they’ve been selling everything from handbags to toiletries to dolls to plant stands, you name it.
David Hoffmann: 22:47
Then on the larger side, we’ve got clients, brands. We do JVC, we do a lot for Wal-Mart and big organizations like that where they’re just shipping millions and millions of dollars, tens of millions of dollars every year-
Jim Palmer: 23:03
David Hoffmann: 23:03
… and under their own private label brands. Those are kind of where we’ve managed the whole supply chain for them and make sure from end-to-end their components comply, production complies-
Jim Palmer: 23:14
David Hoffmann: 23:15
… so it’s quite broad. I mean, every day is like a roller coaster, yeah. You never stop learning lessons.
Jim Palmer: 23:22
This is fascinating conversation. I have time for one more question, David.
David Hoffmann: 23:26
Jim Palmer: 23:26
I’m curious. If somebody, you mentioned like an Amazon reseller, wants to have something made, not a huge conglomerate and they maybe with your help source a vendor, a manufacturer in China, did they have to pay for that all upfront, like even before it ships just trying to get terms? Or is that just no easy answer?
David Hoffmann: 23:48
No. I’ll tell you exactly. Just by the way, our whole division, GlobalTQM, which I started about two years ago, I specifically started to help these small startups and entrepreneurs because I just had friends and family coming to me all the time with issues and problems. My staff would just make a call, speak to them in Chinese and resolve this was like weeks of headaches they had, so it’s very easy to do.
David Hoffmann: 24:17
What we do, for example, is they could come to us. They can ask us to help them find a supplier, help them find a product or develop a product. There are fees involved, but the reality is it’s a cost of time to get things done. But we handhold them through a lot of it. They own the relationship with the suppliers at the end of the day.
David Hoffmann: 24:39
I kind of call it learn by doing. I say if we’ve done our job well, people can do it on their own in the future. They can do a lot of the heavy lifting on their own and then just use people like us for transactional services, doing a site visit or an inspection, and they can do a lot of the negotiations on their own.
David Hoffmann: 24:59
But, typically, to buy something from China from a manufacturer, once you’ve confirmed the product and the samples and you’ve gone through that process, you then pay them a small deposit, maybe 20% or 10% if you can get away with it. Then after the goods are produced, we’d do an inspection on the goods, for example. Once the goods are inspected, you pay the balance and then the good ship out. There’s a little bit of a process.
Jim Palmer: 25:25
Gotcha. Well, this has been a fascinating conversation. This is something I don’t delve into too much, but I [inaudible 00:25:32] about. Thanks so much for coming on my program, David.
David Hoffmann: 25:35
Yeah. You’re welcome, Jim. No problem. Thank you for having me.
Jim Palmer: 25:38
Yeah. We may have some listeners who were curious about getting some stuff manufactured in China. Could you tell them how to reach out to you and connect with them?
David Hoffmann: 25:47
Jim, sure. It’s supereasy. If they’d just go to GlobalTQM.com and that’s our website and then there’s a button there. They just click Schedule a Call or there’s a form they can just tell us their story and what they need and we get back to them straightaway. I handle all the calls myself, so I always like to do the first round of calls and make sure people are really on the right track and path.
Jim Palmer: 26:12
That’s awesome. David, thanks again. I really appreciate your time today.
David Hoffmann: 26:15
Brilliant, Jim. Thanks so much for having me.
David Hoffmann: 26:20
Don’t forget that if you want to talk to us and actually speak to us in person, we got a link in the show notes where you can go to our calendar, schedule a free session. There’s no cost at all for that. We could talk about your situation, what help you need on the ground in China, and see if any of our services are a good fit for you. We just love talking to people, so please feel free to do that no matter what stage you’re at on a sourcing journey. The link is in our show notes. You can also go to our website, GlobalTQM.com and just click the Schedule a Call button. The more we speak to, the happier we are.
27:01 Thank you for listening to the GlobalTQM.com podcast. So you don’t miss a single episode, remember to subscribe to our show on iTunes. We’d also be very grateful if you’d leave us an honest rating and review. Don’t forget to download your free gift, our ebook on China Sourcing for Startups at GlobalTQM.com/gift.