It was a brisk spring morning in Jiangsu province as we stepped off the bullet train arriving at the station. China has some of the most efficient transportation in the world with its trains that travel over 300km per hour (180 mph). We arrived in the dusty town and a gregarious Chinese man named Mr. Chen with closely cropped hair welcomed us to his shiny black Audi. In China having an Audi means a “big shot.”
In China, having an Audi means a “big shot”
The backstory is one of our clients was looking for help sourcing solar air conditioners from China. There was a great opportunity in their marketplace with their plentiful sunshine and high energy costs. Based on our research this was a new technology in China and there were only a handful of factories in China at the time. One of our partners identified a potential supplier and suggested we visit.
So as Mr. Chen drove us to the factory, he bragged about the quality of his products, exports to Australia, and his remarkable factory. I smiled and nodded as I listened on. Once we arrived, he stopped the car in front of the factory and asked us to get off first. Then I watched as he parked the car around the corner outside the complex. We did as we were told and waited in front of the factory as he parked.
A few minutes later he returned and gave us a tour of the factory. Walking through their workshop, I saw only electric air conditioners on the factory floor and none of the solar versions he claimed to manufacture. Solar panels or other related components were nowhere to be found. In fact there was no equipment nor any trace of anything solar-related that would leave me to believe that this factory manufactured solar products.
So I asked Mr. Chen about this. He said that they received a large order of electric A/Cs, which they were busy producing to meet an upcoming delivery deadline. Thus there were no solar units on the factory floor. However, he claimed we could view them in the showroom. We nodded and walked on.
Along the way as we were passing through a holding area we saw a man sitting on the floor tinkering with a stray solar air conditioning unit which was our target product. My partners had a look at it and Mr. Chen gave us the spiel about how great it was. But I felt that this product seemed out of place since there wasn’t equipment to manufacture or assemble it.
Later Mr. Chen took us upstairs to view the showroom. Along the way we passed the office with their staff. Several people passed him by with no acknowledgement. Not even a nod or smile. Not exactly how a Chinese boss or “laoban” should be treated. Nor were we introduced as potential clients.
I felt this was very strange because in Chinese business culture it’s customary that employees respect and acknowledge their “laoban” (or boss). Chinese businesses are very hierarchical. To put it bluntly, factories are ruled by dictators who make all the decisions and control everything. Nothing gets done and no decisions are made without the laoban’s approval.
The “laoban” is in fact the emperor of a Chinese factory.
A Boss in the West (left) vs. a “Laoban” in China (right)
Moreover when clients visit they are considered guests. Normally they’re warmly welcomed with an exchange of business cards, serving of tea, and small talk of where they’re from, what business they do, etc. None of that here. It felt cold.
Finally we went to the showroom. Similar to the workshop we saw various models of electric ACs. But tucked away in the back was a model of the alleged solar air conditioning unit that Mr. Chen claimed to manufacture. He gave us an overview of it as we listened on.
Let me share you a dirty secret in this business. Factories have a very loose definition of “samples.” In fact it’s common that even if they DON’T manufacture a product themselves, sometimes they will take samples from other factories, other (prospective) client’s samples, or retail models from other companies and present them as their own. Their thinking is that while they do not currently manufacture it, they could and this is “representative” of what they COULD do. In my view this is optimistic thinking at best since manufacturing a new product is not so simple for a factory. It involves many variables such as different raw materials, quality standards, testing, worker training, production & assembly, packaging, inspections, etc. It’s not so easy as they would claim.
Nor do they feel it’s necessary to reveal this. Chinese business values tend to emphasize harmony and avoiding problems so they may conveniently not mention this fact. So when offered a sample, DO NOT assume that they are currently manufacturing it. You have to at least ask, if not have some investigative work done. Never assume anything!
After the meeting, Mr. Chen invited us to lunch, which is customary for a Chinese factory to offer to its prospective clients. As we were served an elaborate course of appetizers, various main dishes including seafood, pork, beef, soup, noodles, etc. He asked about our client’s background. We explained the client’s strengths in their local marketplace as well as the favorable market conditions with plentiful sunlight and high energy costs. As we asked him about his business, he boasted of having an Australian client who would place large orders blindly without even needing to visit the factory. I shuddered.
Later as we reviewed the visit, my partners asked me about my impression. Not only did the capabilities of the factory not match the product, the product also seemed out of place in the showroom.
Looking beneath the surface, employees didn’t show any respect or give any face to this alleged boss. And the thing that seemed most out of place was the parking spot. A laoban’s parking spot would never be around the block forcing him to spend time to make the unnecessary walk themselves. It’s basically their birthright to have the prime parking spot with the shortest walk to the entrance RESERVED for them. Always. Rain or shine. If you put the pieces together, this didn’t add up. This man was not the factory owner!
So after presenting my case, we concluded he was a middleman sourcing the product from somewhere else pretending that this was his factory. And in fact he didn’t want to reveal the real factory to us. This lost our trust in him and we decided to proceed with another factory where in fact we witnessed the actual products being assembled and everything else adding up.
Long story short, lesson learned! Even sourcing professionals can be fooled but if you know the warning signs and red flags, this will save you from the risk of getting scammed or at the minimum losing money to a middleman with questionable added value.
Finding a trustworthy supplier requires reviewing the product and the facts as well as reading between the lines. Have you experienced anything like this when dealing with Chinese suppliers? Let me know.
Great posting Gary. I am a member of junglescout and looking for a good source in China. I am fairly new at this but very optimistic that I can be successful. I use to be a former Customs and Immigration Officer who worked at the Los Angeles/Long Beach Seaport.