Whit's China Business Blog

Vendor fade

Dan Harris at the China Law Blog has a great post that sums up what I call “vendor fade”.  I love his restaurant analogy, “One Small China Restaurant Writ Large. Really Large.“  It is a short post, so I will quote here in full, but I strongly urge you to visit the China Law Blog and subscribe.

Had a discussion the other day with two super knowledgeable China people. Both of these people are businesspeople. Both are fluent in Chinese. Both have been living in China for at least a decade. One is a marketing person. The conversation started with my bemoaning how my favorite restaurant in Qingdao so rapidly deteriorated, in every respect. These two people said that virtually always happens and then they proceeded to give me the chronology of what happens to so many good restaurants in China:

1. Restaurant opens with nice space, really good chef, plenty of staff, and no skimping on ingredients.

2.  Restaurant gets really popular and then chef asks for more money and when that is refused, he or she leaves. New, cheaper chef comes in and food quality starts to decline.

3.  Decline in quality from #2 above leads to a small decline in customers.

4.  Seeking to make up for the decline in customers, the restaurant owner starts skimping on the ingredients. Maybe they go from top quality fresh spices to cheaper dried spices.

5.  Decline in the quality of ingredients leads to a decline in the number of customers.

6.  Seeking to make up for the decline in customers, the restaurant owner lays off some staff and starts skimping on overall upkeep of the restaurant.

7.  Decline in customers accelerates and restaurant eventually shuts down.

8.  Owner blames new restaurant down the street for the problems.

We then started talking about how we had seen the same sort of thing with some Chinese products and Chinese suppliers of product to foreign buyers. We talked of how this sort of decline is nearly inevitable if you believe price is what drives your customers.

There is a whole lot of the above going on with Chinese companies and this sort of business is not going to endear one to Western buyers. But we three also talked about Chinese companies we knew that had very consciously broken the above mold and by having done so were thriving in both China and overseas.

Is the above what is holding back Chinese companies from better competing in the West? Is this changing? I say “yes,” to both though I think it will all take a long time.

Sadly, we see “vendor fade” too often.  Clients come to PassageMaker and China Quality Focus because after many good shipments, all of a sudden everything is garbage.  Shipments late, containers of defects, warranty claims out the wazoo.   The value a supplier provides – especially smaller suppliers – is often dependent on a plant manager, production engineer, quality manager, etc., that the Western buyer probably never even met.  That person leaves and the whole place goes off the rails.

Part of our job is to dig into the supplier and try and identify where these potential fault zones are, though there’s often little we can do other than catch the fade when it starts and take corrective action.  We can’t run the supplier’s company for him.

One of the reasons we perform Sourcing Feasibility Studies is to have a bench to go to if the first team fades.  For most customers, we recommend having parallel supply chains – at least two vendors making the components.  I often recommend that one of those suppliers be in the client’s home market.  Little counter-intuitive for a company based in China, but our ultimate goal is the customer’s success.