Some Avoidable Costly Mistakes Startups Make When Sourcing From China [Podcast Ep21, 22, 23]

 

 

A few weeks ago, I was invited on the 2X eCommerce Podcast by Kunle Campbell. It’s a show for entrepreneurs interested in eCommerce tips, strategies and best practices.

Talking to Kunle was great because he asked the right questions. It allowed me to cover some of the essentials you need to know if you’re running a business with plans to source products from China.

In this podcast, you’ll discover:

• What I believe is the main mistake startups make when sourcing products
• What’s changing in China and what’s in store for the future (hint: look outside China)
• How I feel about the Trump-China tariffs
• My best tips for how to make the best of your visits to trade shows
• Why you should register your intellectual property in China

If you’re short on time or can’t listen to the interview, I’ve had it transcribed for you. Scroll down to read our entire conversation.

 

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Interview Transcript

Kunle
[00:22] Yup. We’re live. We’re live. Welcome, welcome. Welcome to the 2 X eCommerce Podcast Show. This is the podcast dedicated to rapid growth in online retail. So if you’re looking to grow metric shortages, you know, conversions, average order value, and ultimately sales you’re in the right show. On today’s episode…Well before I actually get into today’s episode, I just wanted to make a super interesting announcement. It’s around Klayvio Boston which is just around the corner. I believe Klayvio Boston according to my notes here will run on the 25th and 26th of September. And today’s the 4th of September or 5th depending on when you’re listening to this. And basically, it’s in in three weeks’ time. So feel free to check it out. There’ll be more than 600 marketing professionals and eCommerce founders at Klayvio on the 25th and 26th of September. They’re going to be 50 actionable sessions. You don’t want to miss the keynotes. There are going to be online marketing insights. And I’m going to be attending, which is going to be great. I’m going to be podcasting from there. They’re going to be a few podcast sessions I’m going to have with keynote speakers there. So I’ll be heading out to Boston on the 25th and 26th. You don’t want to miss it.

Kunle
[01:43] On today’s episode, back to today’s episode, I’m super, super excited. I have with me David Hoffman. He is an expert in product sourcing from China essentially. So when you’re talking about supply chain, he’s somebody who has a deep understanding and supply chain from China and Asia in general. He’s the man. He is pretty much a CEO. Has been CEO for Global TQM for the last 15 years, which is product sourcing company based out in China. He is based in Hong Kong actually. He’s worked with Target, Kmart, Walmart and a ton of smaller eCommerce entrepreneurs, whether they’re selling via Amazon or in other marketplaces. And also direct to consumer in eCommerce as you know it. So without further ado, I’d like to welcome David to the show. Welcome David!

David
[02:43] Hey Le, thank you! Thanks for having me on the show. I appreciate it.

Kunle
[02:46] Fantastic. I probably haven’t done you sufficient justice with the introduction. Could you just take a minute or less to introduce yourself further?

David
[02:54] Well, I thought it was a good introduction, but yeah, I mean just briefly, I’ve been living out in China for 16 years. We started a business called GlobalTQM.com which is really a done for you services business, which stemmed out of us having, you know, servicing very large retail clients and wholesalers and importers. Some of the brands you mentioned and some other brands you never mentioned like JVC and Aiwa. And because of all our knowledge and experience, what really started happening is me and my partner we’re entrepreneurs by heart anyway so we started up a lot of companies and a lot of businesses. And we’ve got friends and family and they would always come to me and say “Hey David, I’ve got a problem with the factory”, or “I need this” or “I need that”. “Can you help me?”

David
[03:42] I’ve found just through helping friends and family that a couple of calls with our team on the ground and we’ve solved a lot of problems for them. And it just really got me more involved in kind of this division of Global TQM where we try to help first time sellers, startups or entrepreneurs manage their supply chain in China, find the right suppliers, develop the right products and really handle things on the ground because we have a big team here.

Kunle
[04:15] And then you expanded. Okay. So I’m just going to jump right into a technical question. What’s the number one mistake established eCommerce businesses or startup eCommerce business make in China right now, or in Asia, when sourcing for products?

David
[04:40] It’s a really good question. I think it’s a simple thing which is really the attention to detail and the patience that it takes to get products launched. I see so many Eastern and Western miscommunications happening all the time and I find people get impatient and get frustrated with the manufacturers. And it’s such a real cultural and communication difference between East and West that I just find you’ve got to be very detailed, very specific and go through that process of checking, rechecking, sampling and sampling again. A lot of people want to shortcut that and they don’t want to do the hard work and homework. And I’ve explained to some of our big clients and our small clients that the difference between them and a large brand is that a large brand has got a team of people doing all this work all the time and you’re just seeing the end result. If you want to develop that you have to go through that painstaking trial and error and detail. There’s no shortcut to the homework as I call it.

Kunle
[05:51] Yeah, yeah, makes sense. And then there’s also the frustration in terms of time cycles too to get it from factory to your warehouse. And that just piles up the anxiety, I think.

David
[06:08] Absolutely. And I mean, there’s so much detail that goes into it. So by the time you’ve finished finalizing all those details and finish going through all that sampling, you then want to get it manufactured, check that it’s manufactured correctly and then get it delivered. The last thing you want to do is have it delivered and find the problems. You want to catch that at source. And even at source, you know, I mean we do inspections on products and I always tell people you can’t inspect quality into a product. Inspection is a last minute thing. Like it’s a safety net. Really it’s the process before that which has to be thorough and complete in order to make sure you eliminate problems. By the time it’s produced, it’s too late. It’s a rework and it’s not what you want.

Kunle
[06:52] What happens when everything goes tits up and you realize there’s just one bit of detail that’s screwed up the whole roll out of products? Who takes responsibility? How do you fix the problem as quickly as possible? Do you have any stories?

David
[07:15] Kunle, I could tell you so many stories [laughs]. I came to China for one year and I was going to move on, and 16 years later I’m still here because those stories happen every day. You know it’s such a good question. And this is where it comes back to the first question you asked. It’s that attention to detail because who takes responsibility is always the question. You know, everybody says the factory made a mistake when it’s their responsibility. Nine times out of ten when I look into the detail, I find it’s not as cut and dry and things weren’t as clear as they appear to be in somebody’s mind. Whether it was being specific on a specification. You know, sometimes if you don’t say it or you do say it you’ve still got to be very careful.

David
[08:04] Because not saying something doesn’t mean somebody automatically is going to do it. Or that you can assume it’s going to happen. It just doesn’t work like that. And that’s why I say those details are critical. Ultimately, and this is like you say, who takes responsibility? The harsh reality is everyone says well the factory manufactures so they should be responsible. But the bottom line is you take responsibility because you’re the one that suffers the returns. You’re the one that suffers the problems with the customer. At the end of the day you lose your reputation. So I feel that the people that I’ve met and worked with that are really successful in the space are the ones that take all the responsibility. Because they say, well, if there’s a problem it’s my fault. I should’ve checked this in more detail. I should’ve been more specific on this. I should have been a bit more thorough because ultimately, you know, you’ve got to own it.

David
[08:50] If you don’t own it, you’ve always got to pay the price in the end. So rather own it from the beginning and do as much management of it to make sure you get the right results. And work with your partners. You can’t dump the problems on your manufacturing partner and just say, oh, everything’s your fault and ruin the relationship. You need them. You need your manufacturer partners. You can’t kill them. It’s hard to be open minded when you’re emotionally invested in a product. And I get that. It happens to me. I’d go through these emotional roller coasters where I want to pull my hair out. But I’ve always been able to take a step back and say, you know what, I wasn’t quite as specific as I thought I was. Or it was a mistake and I’m going to have to step up and cover the cost or compromise on the cost because there’s a bigger picture at the end of the day.

Kunle
[09:45] So this Global TQM, would you classify it as a trading company or are you a sourcing company?

David
[09:55] It’s a great question. No we’re not exactly either and there’s a very good reason for that because we’re a service provider. We’re a done-for-you service provider. So we really provide resources on the ground in China to help you source products, to help you find the right supplies, to help you manage your orders and communicate, to help you do the inspections. Why are we not a trading company? Because we won’t buy and sell a product. We help you build your relationship directly with your supplier because that’s how we really believe it should be, as in supplier direct to the end buyer is the ultimate formula. So, you know, we find our role is to help people get there quicker and faster and facilitate that process and help them to not repeat some of those mistakes that they’ve made or that we’ve made even in the past and short circuit for that.

David
[10:51] You know, I often say to clients which we’ve had, they say oh, we’re new to this, what do we do? And I go, look, it’s a journey. There’s no black and white. It’s a journey and we’re on it with you. At the beginning we hand hold you a lot. I say if there doesn’t come a time where you don’t need us so much anymore and you’re not traveling to China to do this on your own, we probably haven’t done a good enough job of teaching you as you go. You know, you learn as you go. Our relationship should eventually become transactional where you’re just using us to go check a factory because it’s quicker and faster, or consolidate your samples. And that’s how I see it. It’s a done for you service to accelerate your relationships with your suppliers and your supply chain.

Kunle
[11:33] Okay, and what about like product design? Do you go into that area or are you still more factory validation and product quality checks, quality control?

David
[11:49] Yes. So, we’re more, as you mentioned on that side. We do have a group of designers we work with. Depending on the client we will look at certain projects and say, okay, we’ll use our resource on this as a design project and develop it. We’re quite selective on those because as you can imagine when you get into R&D and the design there’s a lot of investment of time and money and we’ve got to believe in it because we know it’s going to take a lot from us. But we do, we love those opportunities when they’re the right ones.

Kunle
[12:26] At the shared office I work out of sometimes there’s a neighbor of mine who just specializes in product design with China. They’re doing quite well and that’s all they do.

Kunle
[12:42] Okay. So let’s talk about China in itself. You know China’s matured. I was reading Shoe Dog by Phil Knight, you know, Nike? And back in the 70s it was the new frontier. We’re talking 40 or 50 odd years ago. It was like super exciting for them, as you know Nike’s stock actually accelerated as well as Nike’s scale. Obviously it’s 40 or 50 years on now. What is changing in China? What other countries should we factor in from a sourcing standpoint? And what do you see the landscape like? How do you navigate China?

David
[13:32] Yeah, it’s a really good question and there’s so many dimensions to it. I mean, I’ve seen the change in China in so many different ways. I think purely from a manufacturing perspective it’s very clear. A lot of manufacturing is moving out of China to Vietnam, Cambodia etc. I even know a really large clothing brand that’s now manufacturing in Ethiopia at a much lower cost. And you know, those guys were actually telling me the story of how much management they’ve got there to manage the quality and train the people. He’s questioning whether it’s more cost effective, but obviously in the long run it is. I don’t think China’s looking to be a low cost manufacturing country anymore. I think China’s moving more into the AI side of the world.

David
[14:25] I mean, we’re dealing with factories now that are going into chip design or into software design. They’re actually mirroring a lot of the US in all those aspects and starting to get their own proprietary technologies and the big manufacturers in China are servicing the Chinese domestic market, which is a huge market for them. So I don’t believe China is trying to compete at low cost manufacturing anymore. I think they’re progressing. I read a lot about China and their development in AI which just fascinates me. Alibaba would be one of the major players, not just as a platform, but even on government projects. What Alibaba do in terms of AI and government projects is mind blowing.

Kunle
[15:12] Did you see the trending YouTube video about the artificial intelligence conference? I think it was held like a week ago. On one hand it’s Elon Musk and on the other hand it was Jack Ma. And Elon Musk pretty much took Jack Ma down. But I think what Jack Ma’s companies do in Alibaba with AI is light years ahead of what Tesla or even Space X is doing. It’s very, very interesting. He was very conceptual. Have you seen it?

David
[15:51] Yeah, I saw it. It was actually brilliant. I mean, I love just watching Elon Musk. He’s just such a character. I mean he sees AI as the biggest threat to humans and Jack Ma is kind of playing it down. And I promise you, Alibaba is the biggest AI company in the world. It’s frightening. I mean, they’ve developed credit systems based on your behavior. They’ve got air traffic control systems that they’ve tested with the government. They’ve got traffic control systems all through AI. You can’t move in China without the AI.

Kunle
[16:24] You can’t or you’re removed.

David
[16:26] Yeah. Have you heard of the FlyZoo hotel? Alibaba have got an automated hotel where you check in through facial recognition and robots serve your room service. The only humans in the hotel are people that are there to greet you and say hello just so you don’t feel strange that there’s no people around.. This is what they’re testing. And then Jack Ma was kind of trying to say “No, you know humans make AI…”

Kunle
[16:49] Yeah he was playing it down totally deceptive. And then you know if you read the comments everybody fell for it and it was like, seriously?

David
[16:59] I mean if you watch Elon Musk’s facial expressions it was actually quite funny. Because he kind of looks up like “What are you talking about?”

Kunle
[17:07] [laughs] He knows what they’re doing. It was very, very fascinating. So in China, I got a notification from one of these newsletters I’m subscribed to and they’re saying that there’s new tariffs on Chinese goods for U S businesses. So basically from December the 15th there’s going to be a 15% tariff for over 40% of consumer products imported from China, which are going to be footwear, electronics, machinery, plastic products etc. And there’s going to be inflation in America and the consumer is going to pay. How do we balance this out? And how do you see this playing out in the next one year?

David
[18:05] You know they say out of one disaster is born more opportunities right? And I almost think this situation is forcing people to look outside of China. It’s forcing even the Chinese manufacturers, who are opening production plants outside of China so that they still keep their clients. And they’re just expanding. So I think what’s happening is it’s creating an alternative and it’s taking that threat away. So although there’s a short term pain I almost feel like there might be a long-term gain out of this, without a reliance on China and without a threat from the USA and they’re tariffs. You know a lot of factories I go to now I will say, “Do you want me to produce this in my China plant, my Vietnam plant or my Cambodia plant?” Because you know, antidumping duties, we can accommodate you either way. So in a way people always find a way around it and I think that’s what’s happening. It’s spreading the risk, which is good ultimately for the consumer I think. Because these trade wars just don’t benefit anyone.

Kunle
[19:10] Absolutely agree with you. Okay. So one final point I wanted to cover before let you go is trade shows. You know a lot of people get into trade shows. Initially they’re like a kid in a candy store and then all of a sudden its analysis paralysis and they don’t know what to do in trade shows. What is your take on the right approach to trade shows? Give us a small guide, a David Hoffman guide to trade shows.

David
[19:40] It’s a good question. You’ve got a lot of good questions, what can I say Kunle. Firstly I think focus at a trade show is critical because it is. I mean, even me, I’m still like a kid in a candy store when I go to trade shows. But you know, the beauty of seeing things and seeing a variety of things is creativity comes from the strangest places. And I think you can get so many great ideas. And sometimes they’re half-baked ideas that are the right idea but not the right execution. Or maybe it just needs a little bit more to complete the idea. So you can find really wonderful ideas but I think the reality is it’s all in the execution and follow up afterwards. You know, when I would go to a trade show I’ve got a list. And I make a list of great ideas I want to do in the next one year and I’ve got a list of stuff I need the next two months.

David
[20:30] Right? And I just keep going back to my two months list and I allow my mind to wonder free with all these great ideas. But I write them down, I collect the cards, I kind of plant the seeds and let the idea simmer. And I actually genuinely look at those ideas quite regularly and just by default some of them fall off the bandwagon. I go, ah, not interesting anymore. Or still interesting because you start finding actually that the concept might be growing more and more and you go, “Okay, I think I want to look deeper into it”. And then you’ve got those name cards, you’ve got the factories to go see. I just think if you organize yourself into those compartments and accept them for what they are you’ve got a recipe for success.

David
[21:34] You’ve got your potential opportunities. You keep revisiting them until, you know, some things get what I call a natural growth, right? So, the more you revisit some you get a natural growth and they keep growing and keep growing and they get more of your attention.

Kunle
[21:57] Exactly. It’s kind of like reference cards really. Once they’re in mind, at some point you will get back to them and those ideas. There was a time I visited a show in London, I think it was an eCommerce show, and I picked up some contact details of a packaging company. They do all sorts of packaging and when the need arose I did get in touch with them and give their details to an eCommerce store. So it makes massive sense. Would you go to the source, i.e. straight to China, Guangzhou, Shenzhen or even Hong Kong for the shows? Or would you prefer the shows to come to you? I know there’s one in Germany I might be attending in January or February. I think that there are a ton that come through Excel center in London. Where’s the best shows to…?

David
[23:00] Yeah, I think depending on the type of business you’re in the closer to source the better. I find that when the shows are coming to you those manufacturers are a lot more established in terms of branding and marketing and very often they have their own sales channels and they’re looking for distributors, or more sales channels or outlets. They’re quite sophisticated. I’m generally looking for the less sophisticated guys that don’t have these sales channels but are good manufacturers that can make our products and our designs. Otherwise, not a lot of guys need you. You get ideas from everywhere so it doesn’t hurt. Generally, the closer to source the better, but the harder the work.

Kunle
[23:53] Okay, that makes sense. I thought that was going to be my final question, but I have one more question which is the big elephant in the room. It’s about intellectual property protection. What quick tips or rules do you have? Because, you know, eventually goods would be fabricated (copied)…

David
[24:15] Right. I’m glad you asked that question. I’m going to give you my single biggest tip, and I do webinars on this. I preach it all the time to everybody and I really recommend everybody does it in the end. If people want to contact us to do it we can help get it done as well. And that is register your trademark in China. That simple.

Kunle
[24:41] Is it as simple as it sounds?

David
[24:42] Yes it is. And let me explain why. People don’t understand because people think “Okay, I’ve got it registered in the US” or “I’ve got it registered in Europe”, or Australia or wherever they are. And that’s fine and there is a one-year period where you can register in other countries but, and I’m talking from firsthand experience since I’ve helped so many people do this, anybody can register your brand in China. And the first one to register it owns the brand.

David
[25:11] I mean your brand could be registered right now in China and you wouldn’t know until you try to register it and then you see that you can’t because somebody else has done it. And it’s not expensive to do. It’s a couple of hundred dollars. It’s time, some processing, and it’s really not a big deal. But I’ve had cases where the manufacturers have gone and registered our clients’ trademarks. I’ve had manufacturers register my trademarks. Which basically means they start selling the same products online in China. So especially if you’re in the eCommerce space, you might go to Amazon China or JD.com or the big Chinese selling platforms and see your brand and sometimes your product selling online. It’s happened to countless people and it’s a nightmare to deal with because you don’t have your trademark. If you register your trademark in China you can give them one certificate – a Chinese trademark certificate – and you can get it delisted. That alone, for me, makes it worth it.

Kunle
[26:06] Does the trademark cover form? You know, the properties of your products. Or is it based on your brand? Because anybody can copy Nike and then change the tick upside down and…

David
[26:25] Yeah, it’s a really good question. So it doesn’t cover from a trademark that is like your brand in the class that you register it. But why that’s important is because ultimately everybody’s looking for product differentiation. Your biggest differentiator is your brand. You know, people buy Nike because they’re Nike and they buy Adidas because it’s Adidas. Because your brand is your reputation, your customer service, your quality and everything around that. So, you know, first and foremost I say to people, protect your brand everywhere because it’s like your personal name, right? Would you want your name to be tarnished anywhere? You’d say no. And your brand is the same thing. So that’s the first thing you want to protect.

David
[27:10] Even if people copy the product 100%, if it doesn’t say Nike it’s not a Nike, right? Because Nike have got a reputation for quality and all those things. So that’s the easiest, lowest level fruit. Now, yes, there’s a whole separate discussion on design patents and other patents. You know, invention patents or utility patents and things like that where you can say, I want to protect the design. Of course you can do that. If you’ve got a very special product, you should do it. It’s costly. We do it. After countless legal battles I’ve had, and I’m still dealing with, the single biggest thing that has always mattered at the end of the day is your brand and your trademark. Protect that first and foremost. Products change. Life cycles change. You know, Apple changed. Their iPhone changed from the 5S to the 6, to the 7. The design is going to come and go. But your brand name lives forever.

David
[28:09] And that’s why I say that the best advice right now to any eCommerce person is register your trademark in China. Don’t rely on international. It’s a couple of hundred dollars, get it done. And the minute you register it, by the way, you’re protected. It takes about one, one and a half years for the application to go through, but it’s a process. Our people help with all of that stuff, but the key thing is that the first to register gets the priority on the brand. So even though it’s not registered yet because you’ve put the application in, nobody can do it afterwards. I’ve got guys now who are a very successful lighting brand. They’ve done exceptionally well and they want to launch internationally now. The first thing I said to them was “Have you registered the brand in China?” They said “No.” I said “I told you to do it. Please get it done.” Because your factory can see you reordering and reordering and reordering. They’re going to go and register it especially when it’s really nice brand; I can’t mention what it is. Just protect it. It’s a couple of hundred dollars. It’s a no brainer for any business.

Kunle
[29:04] I agree. I agree. It’s first thing you do to secure the market and to secure yourself essentially.

David
[29:11] Yeah register your trademark in China. It’s one of those things that you’ll look back on in five years and go “Wow, that was the cheapest, best advice I ever had.”

Kunle
[29:19] Brilliant stuff. Brilliant stuff. Any other thing you want to say? Any parting words or, do you think we’ve covered everything sufficiently enough?

David
[29:31] No I think we’ve covered a lot. I’m always free for conversations. You know, on our website people can just schedule a call and chat to me and talk to me. I love talking to people about their issues, seeing how we can help or just even giving advice. The more people we meet and network with the happier we are.

Kunle
[29:49] So, you’re based in Hong Kong and your team is based in Shenzen?

David
[29:53] Yeah, I travel up and down. It’s about a one hour travel on the train through the border. So yeah, I do that commute three, four times a week.

Kunle
[30:03] Okay. So for people who want to get through to you, I know your website address and I’m going to share it in the show notes. I’m going to share it on Facebook group. It’s…

David
[30:14] It’s GlobalTQM.com and they can just click ‘book call’ and really I’ll take 90% of those calls, or my team do and we can discuss anything.

Kunle
[30:27] Amazing. And you guys work with like Amazon sellers, SMEs and enterprise?

David
[30:33] A lot of Amazon sellers, a lot of Amazon startups, a lot of SMEs and massive brands we work with. You know, the key thing for us is that it’s scalable to whatever level you’re at. And startups are our favorite because we’re just passionate about that. That’s kind of our home ground.

Kunle

[30:56] David, thank you so much for your time and sharing all that stuff. Good stuff.

David
[31:01] No, thank you! I appreciate it.