T
he recessionary economy is affecting businesses worldwide. If
you deal with Asian suppliers, it’s very important that you and
your people understand what is happening there on the ground
today, and how these trends affect your supplier negotiations.

 

And it’s more important than ever to understand the cultural differences between you and the people across the table –– especially in times of stress, the ways in which you demonstrate your needs toward your suppliers can make or break your business dealings in Asia.

 

Let’s consider China, since this is where so many marketers and retailers produce and source. For example, the production of our company, Newtimes, is about 50 percent in China, and 50 percent outside it.

Who are we, and what perspective do we bring?

Newtimes may be one of the largest companies you have never heard of; doing product development and sourcing for major US brands such as Polo/Ralph Lauren and Nordstrom. We produce a host of products that are branded by other people in the US. From our headquarters in Hong Kong, we manage 1,500 people in China, Southeast Asia, India, Bangladesh, and the Middle East, including Jordan and Egypt. We are a privately held company and owned by Mr. George Ling.

From this vantage point, what are we seeing?

As you probably know, the current socioeconomic situation in Asia can be summed up in two words: not good. Some of the largest sourcing agents and factories in Hong Kong are laying off people for the first time in their history. There are credit issues, labor issues and concerns about Chinese government regulations.

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© iStockphoto.com/ gioadventures

By Alex Angelchick President

Newtimes Development Ltd., Hong Kong

These are compounding similar issues in the US economy.

I am intimately familiar with the need of our customers to reduce their buying costs. Today, Newtimes is fighting each day for better prices and terms for our customers. In this environment, as always, we all want a better price from our suppliers. However, the economic environment has led many factories to compete harder for flat or even shrinking revenue.

 

ASIAN FACTORY SITUATION: TOUGH

But now, let’s look at the situation from the Asian vendor’s perspective. Today it’s tough. Many factories are now up against the wall. They have reached the point where there’s not much left to give.

 

Over the past 10 years, China has had an FOB price depreciation of around 30 percent –– in some categories, it has been 40 percent. And this is on average.

 

The Asian factories have been able to absorb these cost reductions via greater efficiencies, greater volumes, and fairly stable cost of raw materials and labor. Finance has also played a major part.

 

Another important factor is that many of these factories have been financed through investments in stocks and properties in Asia. The Chinese government helped with export tax credits and liberal regulations. They have made it easy for the factories, and for us to do business there.

 

Today, the situation is different. Many of these cost-containing and reducing factors don’t exist any longer.

 

As an example of the current situation: Between January and June 2007, more than 3,600 toy factories in southern China –– over 50 percent of Southern China’s total –– shut down. So