Sink, damn you, sink! Sipping the green tea in a Shanghai airport café as I wait for my colleague to arrive, I curse the fact that no one has had the foresight to make tea bags in this country. The Chinese insist on serving their tea in a tall glass, and the combination of floating leaves and boiling water makes it almost impossible to drink. The solution? Either grow a moustache or get used to toothpicks.
The monthly trip to China has become “one of those things” in purchasing recently. After alerting the CEO to the opportunities, the “Do you’d think I’d stretch my supply chains that far, for their quality? Not for all the tea in, er, China” response demanded action. That was five years ago; now we have sourcing offices in three Chinese cities and a supply chain that just keeps pumping purchase price variance our way.
What finally clinched it was the one-to-one coaching session. “What do your suit, laptop, PDA, cellphone and bathroom soap have in common?” I asked. Well, guess what, they’re all made in China, they all work, and they’re all there when you need them. Oh, and they’re the reason inflation is staying low. Rumour has it the CEO used the same line with the board later that week. (Fortunately, no one noticed I lied about the soap – Imperial Leather is made in Thailand.)
Shanghai is awesome. The rate of expansion almost feels like it’s going to catch up with the speed of the train that takes you from the airport to downtown Pudong. It puts the French TGV to shame, taking just eight minutes to cover 32 miles and reaching an incredible top speed of 432km/h. And all for $1.20.
The simple fact is that China is cheap. Very cheap. And it seems to have a natural predilection to keep itself that way. Which explains why they don’t put tea into a bag – it would probably double the cost. Our fully loaded manufacturing rates are above $20 an hour. But in China, not too far from Shanghai, we can get equivalent work for less than $0.50 an hour. India is even cheaper, but the electricity supply is still too unreliable to risk it.
At one stage, the CEO suggested that if we could get the critical mass of our sourcing into China, why not avail ourselves of the low hourly rates in the purchasing team too? (Personally, if back-office function offshoring were up to me I’d start with HR. Or finance).
To an extent, via our local sourcing offices, we already have, but naturally I raised the spectre of the yuan coming off its US dollar peg and floating to its natural level, which seemed to dampen his enthusiasm.
Back at the airport I spot representatives of three of our competitors standing in a queue. Judging by their unease over the Chinese immigration forms, I would guess that it’s the first time for at least two of them. I notice that one has tried to fill in the side written in Chinese, so being the helpful sort I suggest he might like to flip it over to the other side where it’s translated into English. Oh yes, and go to the back of the line!
Later at the hotel we run into him again on our way to the trade show. Sharing a taxi, he has the gall to ask if this is my first trip. I lie and tell him it is; he lies and tells me it’s routine for him now. In fact, the competitor study made it clear his company doesn’t have a single asset on the ground out here, but relies on agents instead. The plethora of firms offering “your office in Shanghai” makes this a real option, but there’s something about control I like.
Trade shows remind me of a quote, credited I think to Adam Smith, about the only reason salespeople congregate in numbers is to conspire by one means or another to raise their prices to customers. This show seems no exception, although I suppose at least by hunting in packs we buyers are fighting back.
Arriving at the first exhibition hall, I run into a local producer we use. He beckons me to his stand and proceeds to offer me a drink. Tall glass, boiling water, no tea bag. Toothpick anyone?
Jim Frankley (not his real name) leads a purchasing function in a Fortune Global 500 company. He can be contacted at frankleyspeaking@cpoagenda.com
