Provide added value to the supply chain

A man who worked in a state-owned foreign trade company for 12 years, resigned a year ago. When asked why, he said: "The factories are all exporting by themselves. If you want to make orders with factories you can trust, you have to ask them." He added: "Overseas buyers have more and more supply channels to choose from. The more it is, not only is the profit of the foreign trade company getting thinner and thinner, but also the buyers are becoming unreasonable." He lost confidence in continuing to work in such a company.

I don't know what he means by "unreasonable buyers", but at least we can understand one thing, that is, foreign trade companies must face competition from manufacturers, and must compete with them for limited customers resources, especially buyer resources.

The survey found that all international sourcing groups are willing to contact manufacturers directly, rather than always relying on middlemen. Buyers not only want more favorable prices, but also want to know more about products. The reason is very simple. Manufacturers must know more about products than foreign trade companies and can also provide favorable prices.

This is at least the opinion of Jerry Chan, General Manager of TESCO Hong Kong Procurement Center. TESCO is the largest supermarket operator in the UK, with annual sales exceeding $40 billion. The company is the fifth largest retailer in the world and ranks 111th in the Global 500. Last year, its Hong Kong sourcing center purchased more than US$400 million worth of goods from China, 80% of which came from Shenzhen and other parts of Guangdong.

Jerry Chan said: "It is safe to say that we prefer to deal with manufacturers in order to reduce costs and strengthen the direct relationship between manufacturers and retailers."

Clothing, footwear, toys, furniture, home accessories, sporting goods, seasonal products and electrical appliances are an important part of TESCO's current purchases in China, with an annual purchase amount of US$220 million (FOB price). And TESCO's total purchases in China, including finished products using Chinese raw materials, are $447 million per year. At present, their supply factories in China have reached more than 200.

But don't think that with the product and price advantage, the manufacturer will definitely be favored by buyers. Jerry said: "Of course, well-known foreign trade companies still have a lot of experience and can play a great role in ensuring the credit, after-sales service, financing and product development of enterprises."

He continued: " If foreign trade companies can provide added value in product development and design, product expertise, and customer service, we are also very welcome." He emphasized: "We only deal with trading companies that can provide added value to the supply chain. "

Jerry's comments clearly articulate a common supplier preference among today's large buyers sourcing in China. Production companies and foreign trade companies have their own characteristics. As a supplier, it is not important whether it is a production company or a foreign trade company. The important thing is to be able to provide value to buyers.

Suppliers' functional integration

China's foreign trade management system is still undergoing changes, and the functional imprint left by the planned economy to foreign trade companies and production enterprises is still vaguely visible. Foreign trade companies are better at marketing than production, and production companies are the opposite. These functions are now merging.

Jerry said: "Too much you can only deal with trading companies (import and export companies), but the situation is changing very fast these days. Many companies have learned how to do export business and can also interact with overseas customers. In fact , this is a progress, direct communication between the two parties is more efficient than having a third party. The role of foreign trade companies such as marketing, order coordination, quota arrangements or including financing is gradually disappearing in my opinion.”

Trading companies have also noticed this problem very early, they are also in the middle of a change and have made a big adjustment. Jerry said: "Many trading companies are also moving towards industrialization, with the dual functions of production enterprises and exporters." In his view, this is not a bad thing. "As long as they can offer the right product at the right price," he advises.

In this case, it is not so important whether a supplier is a manufacturer or a foreign trade company. Although today's buyers often purchase directly from manufacturers instead of going through intermediaries, especially those technically complex and capital-intensive projects, there are also many buyers who prefer a one-time purchase. The overall solution to its problems is called systematic purchase. System purchases were initially used for government purchases of critical weapons and communications systems. Instead of buying the various components and putting them together, the government solicits quotes from prime contractors who will do the full purchase or the system purchase.

Super buyers like Walmart and TARGET generally seldom place orders directly to a single supplier due to their large purchase volume. Their orders are generally given to their fixed suppliers, and they are required to meet their needs at any time.

With the current intensification of competition, in order to ensure their long-term low price strategy, these super buyers are willing to come to China to set up purchases and absorb a large number of suppliers, but even so, they directly place orders to manufacturers situation is also minimal.

In this case, the foreign trade company is the best potential supplier. They are increasingly recognizing that buyers prefer to source products this way, and correspondingly, some suppliers are beginning to embrace the systematic approach to selling as a marketing tool. A professional foreign trade company dealing in light industry and craft products in Beijing has organized dozens of factories in Jiangsu and Zhejiang as supply bases. The supply targets are large retailers in South America, and achieved very good results. The buyer's procurement team comes to China, not the factory, but directly to the company.

Jerry said: "In this way, from the buyer's point of view, since the task of inventory is transferred to the supplier, the cost can be reduced, and the cost of selecting the supplier can also be reduced by reducing the time. And the price is guaranteed due to the provisions of the contract terms;" Similarly, from the seller's point of view, the operating cost is also reduced due to the fixed demand and the reduction of document work.

Value Value

The author asked the three professional foreign trade companies that won the 2002 Global Sources National Export Enterprise Achievement Award: "Are you worried that the production enterprises entering the foreign trade industry will give foreign trade money? Does the company bring heavy pressure?" The responses of the leaders of the three companies were unexpectedly unanimous: "Not worried." Bringing the required value is a comprehensive consideration. It does not mean that a supplier will be able to win buyers in whichever aspect has an advantage.

These three companies not only understand this, but more importantly, in practice, they are excellent value providers themselves. One company focused on adjusting the product structure and developing new products, and the product replacement rate reached 30% in half a year; the other company focused on specific consumer groups and succeeded in developing specialized products; the third company simply identified itself. As the buyer's purchasing assistant and partner in China, with its own industry experience and capital advantages, it has organized a supply base for the buyer.

As a buyer, Jerry is answering the question "How should a trading company provide more value to compete with manufacturers?": "A trading company should have a very good working relationship with customers. Understanding The needs of customers are very important. Providing added value in the supply chain includes product development and quick response.”

Although TESCO prefers manufacturers when choosing suppliers, they are more interested in whether suppliers can provide value. Jerry said: "If a company lacks export experience, we don't deal with them. The ideal partner should be a manufacturer who understands how TESCO works and can sell to us at ex-works prices. Of course, if the trading company can provide the appropriate We don't mind cooperating with them because of the price and meeting our requirements."

China has become TESCO's main purchasing destination in Asia. In recent years, Tesco's purchases in mainland China have grown at a high rate of 20% to 50%. The main responsibility of Tesco Hong Kong is to purchase goods from mainland China to supply TESCO stores around the world. According to reports, Tesco will set up offices and global procurement centers in mainland China in the near future, of which the Shenzhen procurement center will be the largest one.

Jerry said: "As long as we have found a reliable trading partner, we certainly will not give up any business opportunities. China is a vast country, and there are a lot of opportunities. Our own office can't take care of such a vast region.” At times like these, a competitive supplier is TESCO’s first choice.

He also said: "TESCO has to go through a long evaluation period to select a supplier. Once we become our supplier, we hope to be able to cooperate for a longer time. No matter whether such a supplier is a foreign trade company or not , they have to be competitive, and we'll be competitive."

Jerry concluded, "It's the same with any trading company in the world, it's about knowing your customers, knowing what they need, Be the first to offer a certain product or service at a price that is acceptable to everyone."