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2. Shenzhen is the place to be in 2018 (and next year)
Just a few years ago, many self-proclaimed ‘China experts’ claimed that Shenzhen, and the rest of Guangdong province, was down for the counting – mainly as a result of rising labor costs.
They claimed that all manufacturers would pack up and move inland, to Henan, Hunan, and Sichuan.
But that’s not what happened.
Instead, Shenzhen kept advancing to the point where it’s today the epicenter of manufacturing in Asia.
What makes Shenzhen so unique is the combination of a huge and highly accessible manufacturing base and the complementary ecosystem of service providers.
You can get almost anything made in Shenzhen. That’s not the case in Shanghai, Yiwu, Xiamen or even Guangzhou.
Watches, Electronics, Sportswear.
You name it. Shenzhen has a supplier for it, or 200.
Then there are the service providers.
The quality assurance companies, including our partners Sofeast and Asiainspection, are based here.
The maker spaces are based here. The Amazon FBA logistics companies are based here.
And, it’s the only city in Mainland China that offers visa on arrival (5 days) to foreign visitors.
All of this makes Shenzhen far more accessible for foreign startups and e-commerce businesses, compared to other cities and provinces in the country.
The fact that Shenzhen is next doors to Hong Kong, and integrated with Dongguan and Guangzhou, also helps a lot.
Shenzhen can absorb price increases because the ecosystem that exists in the city can’t just be transplanted to any other region in China or other countries.
Shenzhen is also the place to source suppliers for our customers.
Today, I’d say that more than half of our customers that visit suppliers in China go directly to Shenzhen.
If there ever was a golden age of manufacturing in China, it’s happening right now in Shenzhen.
3. Chinese manufacturers still have a long, long way to go
Manufacturing is difficult. Yet, many Chinese suppliers have a talent for making it more difficult than it has to be.
Difficult and cheap might work.
But difficult and ‘not that cheap anymore’ will definitely not work for much longer.
This is how I think that suppliers should improve in 2018:
a. Standardize your specification sheets and materials and component options. Let your customers know what you can and can’t do.
b. Standardize the ordering process, and use sales contracts instead of Skype or WeChat conversations to keep track of specifications and order terms.
c. Start using proper collaboration tools instead of endless email exchanges (though I understand that’s hard when Google Docs and most other tools are banned in China).
d. Accept that your customers must do quality inspections and lab testing. Don’t argue against this.
e. Learn the basics of product safety standards and labeling requirements in your main markets.
f. Implement proper replacement and after-sales service policies. These don’t have to be unconditional, but forcing the buyer to ‘negotiate compensation’ for every defect unit is a dead end.
From the supplier’s perspective, the buyers are still making the same mistakes as always. They don’t educate themselves about the product or make an effort to understand the basic reality of manufacturing.
I’d even say that most of these issues are not ‘China problems’, but ‘manufacturing problems’.
But at the end of the day, Chinese manufacturers that want to become more competitive must get better at dealing with customers and processes.
4. Vietnam and India are now realistic alternatives to China. For some products.
2017 was the first year that we saw a notable number of customers that are shifting production from China to Vietnam or India.
Some of our customers don’t even consider China, but go directly for suppliers in Vietnam or India.
There’s been a lot of talk about this, but now it seems like it’s actually happening.
These are the top reasons I keep hearing:
1. Chinese suppliers are notoriously difficult to deal with. Some buyers don’t care if prices are higher or lower in other countries. Based on my experience, however, Vietnamese and Indian factories are not necessarily that much easier to deal with.
2. Prices are, in some cases, lower than China.
3. It’s easier to get visas. This matters to both ‘digital nomad’ Amazon sellers and experienced buyer’s, that want to inspect goods on-site, and meet new suppliers face to face.
What kind of products can you find in Vietnam and India?
Textiles, furniture, home products, and construction materials (i.e., tarpaulins) seem to be the main products imported from Vietnam and India.
It’s also true that these countries cannot, even combined, match China’s industrial-scale (and therefore product selection).
But, things move fast these days. Just like Shenzhen a few years ago, I don’t think Vietnam and India should be underestimated.
Saigon will not become another Shenzhen overnight, but a lot can and will happen in the next 10 years.
Chinese suppliers will need to work on everything, from their approach to customers to compliance and quality systems, to stay competitive.
Difficult and cheap might work.
Still difficult and ‘a lot more pricey than Vietnam’ won’t cut it in 2025.
5. Product safety and compliance is still a big problem
We recently executed a supplier screening on behalf of a European client.
This creates an unprecedented layer of security for small to medium-sized businesses importing from China.
In a few years, it would be amazing to see the Trade Assurance program expanded on a global scale.
Adding trust and transparency in international trade can create far more jobs than any state banquet or free trade agreement ever could.
Trade Assurance is not perfect, but it’s a big step in the right direction.
Until recently, you had to wait days to get a shipping quotation. And once you’d received it, in the form of a poorly edited excel file, you’d better have a PhD in international trade law to understand the price structure and terminology.
All of a sudden, that pair of sunglasses will cost you 10 euros, instead of just 1 euro..
Not that affordable anymore, and that 3 week delivery time doesn’t seem that appealing.
It’s already making a massive impact, as large volumes of parcels are now left unclaimed in warehouses, or shipped back to China.
This benefits Importers, while cross border sellers are not that competitive anymore.
In other words, we are not entering a world of global free cross border trade
In a utopia without import tariffs, different (and lack of) product regulations and tax systems, this model could have worked.
But we don’t live in a utopia.
It was only a matter of time until there would be a crackdown on this practice.
I believe that this is only the beginning. The European Union, the United States, and China will do everything they can to keep jobs within their borders. Especially as more jobs are lost to automation.
They will make it all but impossible for the cross border e-commerce model to work.
Co-founder of Asiaimportal (HK) Limited and based in Hong Kong. He has been quoted in and contributed to Bloomberg, SCMP, Alibaba Insights, Globalsources.com, China Chief Executive, Quartz Magazine and more.
Hey there, I’m Fredrik!
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