Delivering crowdfunding’s rewards

[Note: repost from earlier this year]

I just returned from my second China visit of 2015. I spent three days at the largest sourcing fair in the world, the Canton Fair

The remainder of my two-week trip was made up of visiting factories and building my China-based vetting and QC team.

This trip didn’t leave me with a notable, “How’s China?” update. Instead, what’s been striking to me over the last three months is how much of Thayer’s growth has been fueled by crowdfunding (What is crowdfunding?) projects, in particular those launched on the web-platforms Kickstarter and Indiegogo.

This is no coincidence as the following crowdfunding trends read like a description of Thayer’s ideal client.

  • New design and technology products are coming to life as a result of crowdfunding. Crowdfunding sites raised $16.2 billion in 2014, 167% more than 2013 (reference). In Q2 of 2014, design and technology products ranked in the top 5 in amount raised on crowdfunding platforms, together accounting for more than $50m of investment (reference).
  • Greater New York City is home to far more successful crowdfunding projects than any other area. 14% of worldwide crowdfunding pledges support New York City and Brooklyn campaigns.  (reference)
  • Chinese factories are producing the biggest campaigns’ products. I wasn’t able to find sources to support this theory, but my experience is that China is the #1 destination for the fulfillment of big, product-based crowdfunding projects (>1000 backers/pieces).
  • Mass production delays are the rule, rather than the exception for the most successful campaigns. According to a 2013 Wharton Business School study, 75% of crowdfunded projects were late and, more tellingly, the degree of lateness varied proportionally with the amount of funds raised.

The co-founder of a Kickstarter campaign chose to work with Thayer (instead of larger competitors) because he wanted to“take a more freelance approach to manufacturing.” My hope is that the personal, flexible approach offered by Thayer will continue to thrive together with this new movement in product design and delivery.

You can see more about how we work with crowdfunding campaigns on our website. Please message me with any relevant news and/or people who are working in the crowdfunding space. Thank you!

How’s the Chinese economy?

[note: re-post from Feb. 2015, but conclusions still relevant.]

I get asked this question a lot when I come back from China. I think the best answers are found in The Economist’s economic indicators, but I can offer some specialist insight into the manufacturing economy from my trip last month.

The biggest difference that I saw in factory operations between this year and years previous is that the Chinese New Year vacation is starting earlier. In the hey-day of Chinese manufacturing, factories would be humming late into the night in the weeks leading up to the New Year to rush out last minute orders. This year, many factories I am working with shipped their last orders two weeks before the official start of the holiday.

chinaeconomicsIn light of decreasing growth rates in China, the obvious explanation for the early holiday would be slowing orders (see above graph based on World Bank forecasts). However, based on my conversations with factory owners, traders and agents in China, volume is steady. I think that the reason for the early holiday is wrapped up in three trends:

  1. decreasing profitability
  2. increasing power of labor
  3. complacency/incumbency

One, profit margins for manufacturers in China have decreased significantly in recent years. The lower the margins, the less incentive for owners to fill marginal orders, like the ones that come before a holiday.

Two, the interests of factory laborers in China are now a force to be reckoned with. The scarcity of workers, the support of the government and the labor compliance requirements of overseas customers mean that when the workers say they can only get plane tickets home (yes, you read that right) two weeks before the holiday, the owners can do little to change their mind.

Three, there is little fear of customers taking their orders elsewhere. Domestically, all factory owners are facing the same headwinds and their interest in low-margin, last minute orders is tepid at best. Abroad, there is no competition.China is still the only game in town for accessible, economical mass production.

All this adds up to an early vacation for the workshop of the world in 2015. I figure they deserve it.

DISAGREE? QUESTIONS? REFERRALS?

My point about China’s domination of “accessible, economical mass production” is highly debatable and I’m happy to elaborate, just shoot me an email.

And, of course, please let me know if you or anyone you know could use some insight into sourcing or producing goods in China.

Made in USA vs. Made in China

Wondering whether to make some or all of your products and parts overseas?

Here’s a flowchart that I use with prospective clients.

Here are a couple articles that cut to the heart of what makes Made in USA a tough sell.

“Everyone else who makes these has packed up and left the U.S.,” he says. “And we’re getting hit over eight rivets.”http://online.wsj.com/articles/chinese-nets-and-bolts-ensnare-basketball-hoops-in-litigation-1412099954

New Balance finds a happy medium.
http://online.wsj.com/articles/new-balance-shoe-materials-arent-all-u-s-made-1412109111

Please check out our website and drop joe@thayer-consulting.com an email with any questions.

 

When is Chinese New Year and what does it mean for my business?

[NOTE: This was originally published on Linkedin January 2015. Please don’t confuse these 2015 dates with the upcoming 2016 Chinese New Year. -JB]

Chinese New Year (CNY) is February 19th, 2015 and it means a huge headache for everyone who does business there, Chinese included.

The actual break from work varies widely by industry and geography, but CNY has an outsized impact on factory production due to the concentration of migrant labor in factories. See the graphic below.

The best way to minimize the pain is to plan ahead with your Chinese partners.

  • Get a sense of the severity of their production bottleneck leading up to CNY
  • Estimate dates for when they plan to return to work and ramp up production

Then, add an extra week of contingency following the holiday to account for the inevitable post-CNY excuses for delays:

  • Workers jumping to other factories for more money
  • Workers returning late from their hometowns
  • Workers deciding the farming life wasn’t so bad after all and not returning
  • And so on…

The best advice you can get is to start planning now if you haven’t already. Understand your Chinese partners’ challenges as best you can (they are very real), frontload your orders and be prepared for things to turn out worse than you planned.

I’ll be traveling to China on January 23, so if you have any questions or could use any in-person follow-up, please check out thayer-consulting.com and don’t hesitate to contact me through LinkedIn or joe@thayer-consulting.com

If you’re ever looking for a good resource on other Chinese holiday dates and public holidays, I use this regularly.

http://www.travelchinaguide.com/essential/public-holiday.htm

What does “FOB China” mean?

 

If you’re not in the business of international trade, you’re more liable to associate “FOB China” with ‪#‎accidentalasianhipster‬ than pricing. In the language of international logistics, however, “FOB” stands for “free on board,” a term that doesn’t really resonate without some background.Screen Shot 2015-10-30 at 10.23.58 AM

First, you need to understand the costs that a product incurs on its intercontinental journey from a Chinese factory to its final destination in the United States. The most obvious of these is shipping, but there are many others. See the attached diagram for a general overview of a boat shipment of goods from China to the US.

As a buyer, you eventually need to account for every single cost along the way, but when you are first sourcing production options in China, it is often most effective to compare the price of production plus taking your goods to an international port, getting them through customs, paying any export duties before putting them on a boat bound for the US. That price is the “FOB China” price.

With that background, the idea of goods being “free on board” [a shipping vessel] should be easier to conceptualize. The FOB price covers all costs leading up to your goods being on board a vessel at a given stage of the shipment process. Therefore, it can sometimes be useful to use the FOB term to quote a price for getting products to any destination, for example a US port (“FOB USA”) or final destination (“FOB Chicago warehouse”).

So, why is FOB China such a widely used term? Why not just ask how much it costs to produce the product (ex-factory price)? One reason FOB pricing is the most common method of comparing Chinese factory prices is that a sourcing decision is never made solely based on a factory’s ability to produce well or cheaply. That decision is made in light of many factors, among which is the factory’s ability to get products to port efficiently. An illustrative example would be a factory in a small, Chinese town with low labor costs, but poor infrastructure. They might be able to produce your product for $1.00 (ex-factory), but need another $0.50 to get it on a boat to the US ($1.50 FOB China). A factory in a metropolitan region with better roads and administrative capabilities may have higher factory costs ($1.25 ex-factory), but still quote you a lower FOB China price of $1.35.

For those of you in the industry, would love to hear your comments on when and why FOB pricing is and is not useful for you.

For those just getting started, check out our website and feel free to reach out with questions in the comments or via joe@thayer-consulting.com.

Thank you!

Top 10 Chinese Factory Red Flags

Bringing back one of Thayer Consulting‘s very first posts for the inauguration of its blog.
1. Nobody knew you were coming.
2. “Oh, no, we’re not actually making your stuff here…just down the road, at my brother’s factory.”
3. Nobody is smiling.
4. Everybody is smiling.
5. You see your products in production, with other brand labels on them.
6. They aren’t even remotely embarrassed about it.
7. You sense your risk of cancer sharply rising.
8. You can’t find the exits.
9. You leave with more gifts than samples.
10. You’re at karaoke and it’s still light out.