By Aidan Conaty
Date 14th April 2014
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Asia may not offer as much value as you may think.[/caption]
As founder and CEO of Goodada, I have the privilege of traveling to many countries in the world to meet with Goodada’s Clients and Partners. The main purpose of these meetings is to discuss how to promote that country, its products and services through Goodada’s international network.
One area that a lot of time is spent on is making sure that the “Big 7” items are properly addressed when reviewing a category of products from a producer country.
The feedback that I have recently being receiving has caused me to consider that Asia’s position as main producer to Markets in Europe and North America may soon change.
Below is a breakdown of the “Big 7” items and my reasons for seeing a possible change in the horizon:
1. Labor Costs
The reason that Asia and China in particular have become such a powerhouse for world production is simply down to the price of labor. Companies in the USA and Europe saw that there was huge savings to be made by simply switching production across to these “low cost” producer countries.
Recently whilst I was visiting South East Asia and China, I asked for the average monthly wage for a factory worker. I asked the same question when I visited Bulgaria a country in the European Union.
Below are the results:
- China – $600 per month
- Bulgaria – $320 per month
- South East Asia – $250 per month
I am sure that you are as surprised as I was to see that Bulgaria is almost half the average monthly wage of China, whilst it is very close to the monthly wage of South East Asia
2. Transport Costs
It’s a well-known fact that a cartel like model exists within the shipping industry.
Just look at what happens when you try to move goods out from China just before or after the Chinese New Year. If you are lucky to get a space, you will have paid a premium for that space. Did you know that at the busy times of years, the shipping lines actually remove ships as opposed to adding ships to a busy route?
This is a classic case of manipulating the Supply vs Demand model, where in times of high demand and a lack of supply of shipping space will result in the shipping lines achieving premium prices.
Buying from Europe or USA manufacturers where there is more competition within the transport industry and more transport options such as road freight will reduce these excess premium payments.
It is also worth noting that as oil gets more expensive, it may become beneficial to purchase from a country that is closer to you purely to reduce the cost of fuel.
I suggest that you speak with Goodada’s Freight Partner in your area about how to reduce your transport costs.
3. Production Lead Times
If you are buying from Asia, have you recently asked yourself how many days does it day from the moment that an order is placed until the goods arrive into a warehouse and are ready for sale?
The average number of days is 73 days!
Normally what companies have to do is overcome lengthy lead times is to carry extra stock. This can affect a company’s cash flow and possibly keep the phone calls coming in from the Bank Manager!
Sourcing locally can reduce these long lead times and possible free up your companies cash to invest in areas in order to grow your business and keep the Bank Manager happy.
4. Buyer Protection
There are many tales out there which tell stories of people being cheated from sellers in countries such as China. That is why Goodada provides services such as Supplier Verifications, Quality Control Inspections across Asia and legal services in China.
But buyers often forget that when they purchase from Manufacturers in their own market such as the USA or the EU, they are automatically afforded legal protections. This is not available when they purchase outside of their trading block.
As the world is becoming a smaller place, in terms of communications, the risks of deception or poor product grows. So why not use these improved communication channels to speak with manufacturers in your trading block?
5. Communication
As was hinted in point 4 – Communication has changed the way that we do business. However what people often forget is that time zones have not changed as well.
So a hidden cost is those 8 hour time differences which result in very early starts or late finishes! And what if there are problems? Companies have the added stress of those wasted hours waiting for a response to confirm that the seller understands an issue and can fix it.
Goodada always advise the buyer to use a freight company in their area as this will reduce one major communication headache.
Companies are starting to reconsider where their manufacturers are located, the main question will be “Can staff during normal working hours pick up the phone and speak with the Manager of the Seller factory “. If the answer is “No”, then some are look for alternatives closer to their offices.
6. Government Taxes and Regulation
Government regulation and taxation policy can instantly destroy a successful supply chain with an Asian manufacturer.
I like to use the USA and China to make this point. China is the biggest player in the world for furniture. A lot of USA companies source their furniture from Chinese Manufacturers. This was all very good until the USA government imposed high duties on Bedroom furniture coming from China.
This resulted in companies having to dramatically search for new manufactures in other countries such as Vietnam.
However if companies were buying from manufacturers in their own trading areas this issue would not have had any affect.
7. Local Market Demands and Expectations
Everybody knows that it’s the local market demands and expectations that will affect the sales ability of a product. So logically it would be better to have manufacturers who are also from that market as they will know the local demands and expectations that is required from the products which they manufacture.
Currently an area of concern for European buyers is raw material sustainability. This has resulted in an increased demand for products from sustained resources an example is FSC certification for paper and wood products. Customers across Europe are starting to demand that the paper bags and wood furniture that they use come from independently certified sustainable resources.
European Manufacturers now are ahead of their Asia counterparts in providing their customers with FSC certified products.
About the author
Aidan Conaty is the founder of Goodada.com. Aidan has spent over 15 years assisting companies to trade internationally. He founded Goodada so that it can provide the tools and services that can assist companies to trade internationally.